Is Alcor Micro,Corp. (GTSM:8054) A Good Dividend Stock?

Dividend paying stocks like Alcor Micro,Corp. (GTSM:8054) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested 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.

A slim 2.0% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Alcor MicroCorp could have potential. The company also bought back stock during the year, equivalent to approximately 3.6% of the company's market capitalisation at the time. That said, the recent jump in the share price will make Alcor MicroCorp's dividend yield look smaller, even though the company prospects could be improving. There are a few simple ways to reduce the risks of buying Alcor MicroCorp for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Alcor MicroCorp!

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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. While Alcor MicroCorp pays a dividend, it reported a loss over the last year. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

Alcor MicroCorp paid out 13% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable.

With a strong net cash balance, Alcor MicroCorp investors may not have much to worry about in the near term from a dividend perspective.

Remember, you can always get a snapshot of Alcor MicroCorp's latest financial position, by checking our visualisation of its financial health.

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 Alcor MicroCorp's dividend payments. This dividend has been unstable, which we define as having been cut one or more times over this time. During the past 10-year period, the first annual payment was NT$2.0 in 2011, compared to NT$0.5 last year. This works out to a decline of approximately 75% over that time.

We struggle to make a case for buying Alcor MicroCorp for its dividend, given that payments have shrunk over the past 10 years.

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. Alcor MicroCorp's EPS have fallen by approximately 50% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

To summarise, shareholders should always check that Alcor MicroCorp's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're not keen on the fact that Alcor MicroCorp paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In summary, Alcor MicroCorp has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are a number of better ideas out there.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Alcor MicroCorp has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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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