Sino-American Silicon Products Inc. (GTSM:5483) Is About To Go Ex-Dividend, And It Pays A 4.4% Yield

It looks like Sino-American Silicon Products Inc. (GTSM:5483) is about to go ex-dividend in the next 4 days. You can purchase shares before the 26th of January in order to receive the dividend, which the company will pay on the 26th of February.

Sino-American Silicon Products's next dividend payment will be NT$3.50 per share. Last year, in total, the company distributed NT$7.00 to shareholders. Last year's total dividend payments show that Sino-American Silicon Products has a trailing yield of 4.4% on the current share price of NT$160. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Sino-American Silicon Products

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 88% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 104% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want look more closely here.

Sino-American Silicon Products does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Sino-American Silicon Products paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Sino-American Silicon Products to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Sino-American Silicon Products's earnings have been skyrocketing, up 36% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sino-American Silicon Products has delivered an average of 23% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

Should investors buy Sino-American Silicon Products for the upcoming dividend? Earnings per share growth is a positive, and the company's payout ratio looks normal. However, we note Sino-American Silicon Products paid out a much higher percentage of its free cash flow, which makes us uncomfortable. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

However if you're still interested in Sino-American Silicon Products as a potential investment, you should definitely consider some of the risks involved with Sino-American Silicon Products. Our analysis shows 2 warning signs for Sino-American Silicon Products and you should be aware of them before buying any shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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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