Is Silicon Integrated Systems Corp. (TPE:2363) An Attractive Dividend Stock?

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. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

While Silicon Integrated Systems's 2.3% dividend yield is not the highest, we think its lengthy payment history is quite interesting. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

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

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 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. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was NT$0.7 in 2010, 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. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Silicon Integrated Systems' earnings per share, which support the dividend, have been anything but stable.

We'd also point out that Silicon Integrated Systems issued a meaningful number of new shares in the past year. Regularly issuing new shares can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

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. First, it's not great to see a dividend being paid despite the company being unprofitable over the last year. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. With this information in mind, we think Silicon Integrated Systems may not be an ideal dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Silicon Integrated Systems has 4 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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