Zooming in on GTSM:2064's 4.3% Dividend Yield

Could Camellia Metal Co., Ltd. (GTSM:2064) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

In this case, Camellia Metal likely looks attractive to dividend investors, given its 4.3% dividend yield and nine-year payment history. It sure looks interesting on these metrics - but there's always more to the story. During the year, the company also conducted a buyback equivalent to around 1.0% of its market capitalisation. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

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Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Although it reported a loss over the past 12 months, Camellia Metal currently pays a dividend. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

Camellia Metal's cash payout ratio last year was 22%, which is quite low and suggests that the dividend was thoroughly covered by cash flow.

Consider getting our latest analysis on Camellia Metal's financial position here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. The first recorded dividend for Camellia Metal, in the last decade, was nine years ago. It's good to see that Camellia Metal has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we're concerned that what has been cut once, could be cut again. During the past nine-year period, the first annual payment was NT$1.5 in 2012, compared to NT$0.6 last year. This works out to be a decline of approximately 9.7% per year over that time. Camellia Metal's dividend hasn't shrunk linearly at 9.7% per annum, but the CAGR is a useful estimate of the historical rate of change.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

Dividend Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. Over the past five years, it looks as though Camellia Metal's EPS have declined at around 57% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Camellia Metal's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Camellia Metal's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're not keen on the fact that Camellia Metal paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In summary, Camellia Metal has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are a number of better ideas out there.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come accross 4 warning signs for Camellia Metal you should be aware of, and 2 of them are a bit concerning.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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