Is Taiwan Aries Co.,Ltd. (GTSM:6171) A Good Dividend Stock?

Today we'll take a closer look at Taiwan Aries Co.,Ltd. (GTSM:6171) 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. 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.

Investors might not know much about Taiwan AriesLtd's dividend prospects, even though it has been paying dividends for the last nine years and offers a 1.3% yield. A 1.3% yield is not inspiring, but the longer payment history has some appeal. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Click the interactive chart for our full dividend analysis

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Although Taiwan AriesLtd pays a dividend, it was loss-making during the past year. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

Unfortunately, while Taiwan AriesLtd 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.

Consider getting our latest analysis on Taiwan AriesLtd's financial position here.

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. The first recorded dividend for Taiwan AriesLtd, in the last decade, was nine years ago. Although it has been paying a dividend for several years now, the dividend has been cut at least once, and we're cautious about the consistency of its dividend across a full economic cycle. During the past nine-year period, the first annual payment was NT$0.2 in 2012, compared to NT$0.3 last year. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. Taiwan AriesLtd's dividend payments have fluctuated, so it hasn't grown 4.6% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

It's good to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth, anyway. We're not that enthused by this.

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. Taiwan AriesLtd's EPS have fallen by approximately 50% 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 Taiwan AriesLtd's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Taiwan AriesLtd'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 Taiwan AriesLtd paying a dividend while loss-making, especially since the dividend was also not well covered by free cash flow. Earnings per share are down, and Taiwan AriesLtd's dividend has been cut at least once in the past, which is disappointing. There are a few too many issues for us to get comfortable with Taiwan AriesLtd from a dividend perspective. Businesses can change, but we would struggle to identify why an investor should rely on this stock for their income.

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. For example, we've identified 4 warning signs for Taiwan AriesLtd (2 are a bit concerning!) that you should be aware of before investing.

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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