Is Chime Ball Technology Co.,Ltd. (GTSM:1595) A Good Dividend Stock?

Today we'll take a closer look at Chime Ball Technology Co.,Ltd. (GTSM:1595) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

A high yield and a long history of paying dividends is an appealing combination for Chime Ball TechnologyLtd. It would not be a surprise to discover that many investors buy it for the dividends. The company also bought back stock equivalent to around 0.7% of market capitalisation this year. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

Explore this interactive chart for our latest analysis on Chime Ball TechnologyLtd!

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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. In the last year, Chime Ball TechnologyLtd paid out 95% of its profit as dividends. This is quite a high payout ratio that suggests the dividend is not well covered by earnings.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Last year, Chime Ball TechnologyLtd paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

We update our data on Chime Ball TechnologyLtd 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. Chime Ball TechnologyLtd has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was NT$2.7 in 2010, compared to NT$1.3 last year. This works out to be a decline of approximately 7.5% per year over that time. Chime Ball TechnologyLtd's dividend has been cut sharply at least once, so it hasn't fallen by 7.5% every year, but this is a decent approximation of the long term 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

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. Over the past five years, it looks as though Chime Ball TechnologyLtd's EPS have declined at around 29% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Chime Ball TechnologyLtd's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Chime Ball TechnologyLtd's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. It's a concern to see that the company paid out such a high percentage of its earnings and cashflow as dividends. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In this analysis, Chime Ball TechnologyLtd doesn't shape up too well as a dividend stock. We'd find it hard to look past the flaws, and would not be inclined to think of it as a reliable dividend-payer.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 5 warning signs for Chime Ball TechnologyLtd (of which 2 are significant!) 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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