Stock Analysis

Is Advanced Ceramic X Corporation's (GTSM:3152) 2.0% Dividend Worth Your Time?

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TPEX:3152
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Is Advanced Ceramic X Corporation (GTSM:3152) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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 2.0% yield is nothing to get excited about, but investors probably think the long payment history suggests Advanced Ceramic X has some staying power. Some simple analysis can reduce the risk of holding Advanced Ceramic X for its dividend, and we'll focus on the most important aspects below.

Click the interactive chart for our full dividend analysis

historic-dividend
GTSM:3152 Historic Dividend November 30th 2020

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Advanced Ceramic X paid out 79% of its profit as dividends, over the trailing twelve month period. It's paying out most of its earnings, which limits the amount that can be reinvested in the business. This may indicate limited need for further capital within the business, or highlight a commitment to paying a dividend.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Last year, Advanced Ceramic X paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

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

We update our data on Advanced Ceramic X 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. For the purpose of this article, we only scrutinise the last decade of Advanced Ceramic X's dividend payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past 10-year period, the first annual payment was NT$3.6 in 2010, compared to NT$8.4 last year. Dividends per share have grown at approximately 8.8% per year over this time.

Businesses that can grow their dividends at a decent rate and maintain a stable payout can generate substantial wealth for shareholders over the long term.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Advanced Ceramic X has grown its earnings per share at 9.3% per annum over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Conclusion

To summarise, shareholders should always check that Advanced Ceramic X's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, the company has a payout ratio that was within an average range for most dividend stocks, but it paid out virtually all of its generated cash flow. We like that it has been delivering solid improvement in its earnings per share, and relatively consistent dividend payments. Ultimately, Advanced Ceramic X comes up short on our dividend analysis. It's not that we think it is a bad company - just that there are likely more appealing dividend prospects out there on this analysis.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Advanced Ceramic X that investors should know about before committing capital to this stock.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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About TPEX:3152

Advanced Ceramic X

Advanced Ceramic X Corporation designs, manufactures, and sells RF front-end devices and modules for wireless communication applications in Taiwan, China, the United States, Hong Kong, and internationally.

Flawless balance sheet second-rate dividend payer.

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