Stock Analysis

Here's What You Should Know About SYN-TECH Chem. & Pharm. Co., Ltd.'s (GTSM:1777) 4.6% Dividend Yield

TPEX:1777
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Is SYN-TECH Chem. & Pharm. Co., Ltd. (GTSM:1777) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

In this case, SYN-TECH Chem. & Pharm likely looks attractive to investors, given its 4.6% dividend yield and a payment history of over ten years. We'd guess that plenty of investors have purchased it for the income. Some simple research can reduce the risk of buying SYN-TECH Chem. & Pharm for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on SYN-TECH Chem. & Pharm!

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GTSM:1777 Historic Dividend November 29th 2020

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, SYN-TECH Chem. & Pharm paid out 58% of its profit as dividends. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. The company paid out 50% of its free cash flow, which is not bad per se, but does start to limit the amount of cash SYN-TECH Chem. & Pharm has available to meet other needs. It's positive to see that SYN-TECH Chem. & Pharm's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

With a strong net cash balance, SYN-TECH Chem. & Pharm investors may not have much to worry about in the near term from a dividend perspective.

Consider getting our latest analysis on SYN-TECH Chem. & Pharm'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. For the purpose of this article, we only scrutinise the last decade of SYN-TECH Chem. & Pharm's dividend 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$1.6 in 2010, compared to NT$3.5 last year. Dividends per share have grown at approximately 8.0% per year over this time. SYN-TECH Chem. & Pharm's dividend payments have fluctuated, so it hasn't grown 8.0% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. SYN-TECH Chem. & Pharm might have put its house in order since then, but we remain cautious.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? SYN-TECH Chem. & Pharm has grown its earnings per share at 4.3% per annum over the past five years. Growth of 4.3% is relatively anaemic growth, which we wonder about. When a business is not growing, it often makes more sense to pay higher dividends to shareholders rather than retain the cash with no way to utilise it.

Conclusion

To summarise, shareholders should always check that SYN-TECH Chem. & Pharm's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. SYN-TECH Chem. & Pharm's is paying out more than half its income as dividends, but at least the dividend is covered by both reported earnings and cashflow. Unfortunately, earnings growth has also been mediocre, and the company has cut its dividend at least once in the past. Ultimately, SYN-TECH Chem. & Pharm comes up short on our dividend analysis. It's not that we think it is a bad company - just that there are likely more appealing dividend prospects out there on this analysis.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 SYN-TECH Chem. & Pharm that investors should know about before committing capital to this stock.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield 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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