Does Silicon Integrated Systems Corp. (TPE:2363) Have A Place In Your Dividend Stock Portfolio?

Is Silicon Integrated Systems Corp. (TPE:2363) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

A 1.9% yield is nothing to get excited about, but investors probably think the long payment history suggests Silicon Integrated Systems has some staying power. Some simple analysis can reduce the risk of holding Silicon Integrated Systems for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Silicon Integrated Systems!

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. While Silicon Integrated Systems 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.

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

We update our data on Silicon Integrated Systems 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. Silicon Integrated Systems has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of 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$0.7 in 2011, compared to NT$0.3 last year. The dividend has shrunk at around 8.1% a year during that period. Silicon Integrated Systems' dividend hasn't shrunk linearly at 8.1% per annum, but the CAGR is a useful estimate of the historical rate of change.

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

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. Silicon Integrated Systems' EPS have fallen by approximately 24% 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.

We'd also point out that Silicon Integrated Systems issued a meaningful number of new shares in the past year. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Conclusion

To summarise, shareholders should always check that Silicon Integrated Systems' dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're a bit uncomfortable with it paying a dividend while reporting a loss over the past year. Earnings per share are down, and Silicon Integrated Systems' dividend has been cut at least once in the past, which is disappointing. With this information in mind, we think Silicon Integrated Systems 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. However, there are other things to consider for investors when analysing stock performance. To that end, Silicon Integrated Systems has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding 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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