Could China Glaze Co.,Ltd. (TPE:1809) 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.
A 1.1% yield is nothing to get excited about, but investors probably think the long payment history suggests China GlazeLtd has some staying power. Remember though, due to the recent spike in its share price, China GlazeLtd's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. Some simple research can reduce the risk of buying China GlazeLtd for its dividend - read on to learn more.
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Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, 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, China GlazeLtd currently pays a dividend. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.
China GlazeLtd paid out a conservative 25% of its free cash flow as dividends last year.
While the above analysis focuses on dividends relative to a company's earnings, we do note China GlazeLtd's strong net cash position, which will let it pay larger dividends for a time, should it choose.
Consider getting our latest analysis on China GlazeLtd's financial position here.
Dividend Volatility
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. China GlazeLtd has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was NT$0.2 in 2011, compared to NT$0.2 last year. The dividend has shrunk at a rate of less than 1% a year over this period.
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, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. China GlazeLtd's EPS have fallen by approximately 79% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.
Conclusion
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're not keen on the fact that China GlazeLtd paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Earnings per share are down, and China GlazeLtd's dividend has been cut at least once in the past, which is disappointing. In summary, China GlazeLtd 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come accross 2 warning signs for China GlazeLtd you should be aware of, and 1 of them makes us a bit uncomfortable.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 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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About TWSE:1809
Adequate balance sheet with acceptable track record.
