Do Investors Have Good Reason To Be Wary Of Joinsoon Electronics Manufacturing CO., LTD.'s (GTSM:3322) 2.0% Dividend Yield?

Today we'll take a closer look at Joinsoon Electronics Manufacturing CO., LTD. (GTSM:3322) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. 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 2.0% yield is nothing to get excited about, but investors probably think the long payment history suggests Joinsoon Electronics Manufacturing has some staying power. That said, the recent jump in the share price will make Joinsoon Electronics Manufacturing's dividend yield look smaller, even though the company prospects could be improving. Some simple analysis can reduce the risk of holding Joinsoon Electronics Manufacturing for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Joinsoon Electronics Manufacturing!

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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. While Joinsoon Electronics Manufacturing 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.

Unfortunately, while Joinsoon Electronics Manufacturing pays a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it's not ideal from a dividend perspective.

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

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Joinsoon Electronics Manufacturing's dividend payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was NT$0.5 in 2011, compared to NT$0.3 last year. This works out to be a decline of approximately 6.6% per year over that time. Joinsoon Electronics Manufacturing's dividend has been cut sharply at least once, so it hasn't fallen by 6.6% every year, but this is a decent approximation of the long term change.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

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. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Joinsoon Electronics Manufacturing has grown its earnings per share at 29% per annum over the past five years.

Conclusion

To summarise, shareholders should always check that Joinsoon Electronics Manufacturing'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 a bit uncomfortable with Joinsoon Electronics Manufacturing paying a dividend while loss-making, especially since the dividend was also not well covered by free cash flow. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. In summary, Joinsoon Electronics Manufacturing has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are likely more attractive alternatives out there.

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 Joinsoon Electronics Manufacturing that investors should know about before committing capital to this stock.

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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