Here's What You Should Know About Chi Sheng Pharma & Biotech Co., Ltd's (GTSM:4111) 4.2% Dividend Yield

Could Chi Sheng Pharma & Biotech Co., Ltd (GTSM:4111) 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. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

With a nine-year payment history and a 4.2% yield, many investors probably find Chi Sheng Pharma & Biotech intriguing. We'd agree the yield does look enticing. Some simple research can reduce the risk of buying Chi Sheng Pharma & Biotech for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Chi Sheng Pharma & Biotech!

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. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. In the last year, Chi Sheng Pharma & Biotech paid out 79% of its profit as dividends. It's paying out most of its earnings, which limits the amount that can be reinvested in the business. This may indicate limited need for further capital within the business, or highlight a commitment to paying a dividend.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Chi Sheng Pharma & Biotech paid out 62% of its free cash flow last year, which is acceptable, but is starting to limit the amount of earnings that can be reinvested into the business. It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

While the above analysis focuses on dividends relative to a company's earnings, we do note Chi Sheng Pharma & Biotech's strong net cash position, which will let it pay larger dividends for a time, should it choose.

We update our data on Chi Sheng Pharma & Biotech every 24 hours, so you can always get our latest analysis of its financial health, 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. Looking at the last decade of data, we can see that Chi Sheng Pharma & Biotech paid its first dividend at least nine years ago. Although it has been paying a dividend for several years now, the dividend has been cut at least once, and we're cautious about the consistency of its dividend across a full economic cycle. During the past nine-year period, the first annual payment was NT$0.3 in 2012, compared to NT$1.0 last year. Dividends per share have grown at approximately 14% per year over this time. The dividends haven't grown at precisely 14% every year, but this is a useful way to average out the historical rate of growth.

So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.

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? Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Chi Sheng Pharma & Biotech has grown its earnings per share at 12% per annum over the past five years. Earnings per share are growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Chi Sheng Pharma & Biotech is not retaining those earnings to reinvest in growth.

Conclusion

To summarise, shareholders should always check that Chi Sheng Pharma & Biotech's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we think Chi Sheng Pharma & Biotech is paying out an acceptable percentage of its cashflow and profit. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. Ultimately, Chi Sheng Pharma & Biotech 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Chi Sheng Pharma & Biotech that investors should know about before committing capital to this stock.

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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