Know This Before Buying Kwong Fong Industries Corporation (TPE:1416) For Its Dividend

Is Kwong Fong Industries Corporation (TPE:1416) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

With Kwong Fong Industries yielding 4.4% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. It would not be a surprise to discover that many investors buy it for the dividends. Some simple research can reduce the risk of buying Kwong Fong Industries for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Kwong Fong Industries!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Although it reported a loss over the past 12 months, Kwong Fong Industries currently pays a dividend. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

We update our data on Kwong Fong Industries 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. For the purpose of this article, we only scrutinise the last decade of Kwong Fong Industries' 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$1.0 in 2011, compared to NT$0.5 last year. The dividend has shrunk at around 6.6% a year during that period. Kwong Fong Industries' dividend hasn't shrunk linearly at 6.6% per annum, but the CAGR is a useful estimate of the historical rate of change.

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

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Kwong Fong Industries' earnings per share have shrunk at 56% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Kwong Fong Industries' earnings per share, which support the dividend, have been anything but stable.

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. Kwong Fong Industries is paying out a dividend despite reporting a loss; clearly a concern. Earnings per share are down, and Kwong Fong Industries' dividend has been cut at least once in the past, which is disappointing. With this information in mind, we think Kwong Fong Industries may not be an ideal dividend 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. To that end, Kwong Fong Industries has 5 warning signs (and 3 which are potentially serious) we think you should know about.

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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