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

Goldsun Building Materials Co., Ltd. (TWSE:2504) has announced that it will be increasing 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 4.3%, providing a nice boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Goldsun Building Materials' stock price has increased by 32% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Goldsun Building Materials

Goldsun Building Materials' Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Goldsun Building Materials was paying out quite a large proportion of both earnings and cash flow, with the dividend being 134% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS is forecast to expand by 1.4%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 85% which is a bit high but can definitely be sustainable.

Goldsun Building Materials' Dividend Has Lacked Consistency

Looking back, Goldsun Building Materials' dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 9 years was NT$0.467 in 2015, and the most recent fiscal year payment was NT$2.10. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Goldsun Building Materials has seen EPS rising for the last five years, at 41% per annum. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Goldsun Building Materials is not retaining those earnings to reinvest in growth.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Goldsun Building Materials' payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Goldsun Building Materials that investors should know about before committing capital to this stock. Is Goldsun Building Materials not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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