How Does ICP Das Co., Ltd. (GTSM:3577) Fare As A Dividend Stock?

Is ICP Das Co., Ltd. (GTSM:3577) 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 the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

A 2.4% yield is nothing to get excited about, but investors probably think the long payment history suggests ICP Das has some staying power. There are a few simple ways to reduce the risks of buying ICP Das for its dividend, and we'll go through these below.

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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. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Looking at the data, we can see that 102% of ICP Das' profits were paid out as dividends in the last 12 months. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. ICP Das paid out 113% of its free cash flow last year, which we think is concerning if cash flows do not improve. Cash is slightly more important than profit from a dividend perspective, but given ICP Das' payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

Consider getting our latest analysis on ICP Das' financial position 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. ICP Das 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$0.5 in 2011, compared to NT$0.7 last year. Dividends per share have grown at approximately 3.5% per year over this time. ICP Das' dividend payments have fluctuated, so it hasn't grown 3.5% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. ICP Das' EPS have fallen by approximately 13% 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 ICP Das' earnings per share, which support the dividend, have been anything but stable.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. ICP Das paid out almost all of its cash flow and profit as dividends, leaving little to reinvest in the business. Earnings per share are down, and ICP Das' dividend has been cut at least once in the past, which is disappointing. Using these criteria, ICP Das looks quite suboptimal from a dividend investment perspective.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, ICP Das has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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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