Investors In ACULA Technology Corp. (GTSM:3434) Should Consider This, First

Dividend paying stocks like ACULA Technology Corp. (GTSM:3434) 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. 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.

Investors might not know much about ACULA Technology's dividend prospects, even though it has been paying dividends for the last five years and offers a 2.2% yield. A 2.2% yield is not inspiring, but the longer payment history has some appeal. Some simple research can reduce the risk of buying ACULA Technology for its dividend - read on to learn more.

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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. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Although it reported a loss over the past 12 months, ACULA Technology currently pays a dividend. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

ACULA Technology paid out 18% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable.

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

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. ACULA Technology has been paying a dividend for the past five years. During the past five-year period, the first annual payment was NT$0.3 in 2015, compared to NT$0.3 last year. This works out to be a decline of approximately 3.0% per year over that time. ACULA Technology's dividend has been cut sharply at least once, so it hasn't fallen by 3.0% every year, but this is a decent approximation of the long term change.

We struggle to make a case for buying ACULA Technology for its dividend, given that payments have shrunk over the past five years.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. ACULA Technology's earnings per share have shrunk at 12% a year over 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 ACULA Technology'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 the company paying a dividend while being loss-making, although at least the dividend was covered by free cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. In summary, ACULA Technology 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. Just as an example, we've come accross 4 warning signs for ACULA Technology you should be aware of, and 1 of them shouldn't be ignored.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield 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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