Goldsun Building Materials' (TWSE:2504) Dividend Will Be Increased To NT$2.10

Goldsun Building Materials Co., Ltd. (TWSE:2504) will increase its dividend from last year's comparable payment on the 19th of July to NT$2.10. This will take the dividend yield to an attractive 4.6%, providing a nice boost to shareholder returns.

Check out our latest analysis for Goldsun Building Materials

Goldsun Building Materials' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Goldsun Building Materials' dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 134% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Over the next year, EPS is forecast to expand by 1.4%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 85% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Goldsun Building Materials' Dividend Has Lacked Consistency

Goldsun Building Materials has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2015, the dividend has gone from NT$0.467 total annually to NT$2.10. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Goldsun Building Materials has impressed us by growing EPS at 41% per year over the past five years. However, Goldsun Building Materials isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Goldsun Building Materials will make a great income stock. While Goldsun Building Materials is earning enough to cover the payments, the cash flows are lacking. We don't think Goldsun Building Materials is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Goldsun Building Materials that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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