Is Poindus Systems Corp. (GTSM:6599) A Good Dividend Stock?

Dividend paying stocks like Poindus Systems Corp. (GTSM:6599) 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. 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.

Poindus Systems pays a 4.1% dividend yield, and has been paying dividends for the past three years. A 4.1% yield does look good. Could the short payment history hint at future dividend growth? Some simple analysis can reduce the risk of holding Poindus Systems for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Poindus Systems!

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. Although Poindus Systems pays a dividend, it was loss-making during the past year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

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

Consider getting our latest analysis on Poindus Systems' 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. It has only been paying dividends for a few short years, and the dividend has already been cut at least once. This is one income stream we're not ready to live on. During the past three-year period, the first annual payment was NT$1.5 in 2018, compared to NT$1.0 last year. Dividend payments have fallen sharply, down 33% over that time.

We struggle to make a case for buying Poindus Systems for its dividend, given that payments have shrunk over the past three years.

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. Poindus Systems' EPS have fallen by approximately 37% per year during 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

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. First, it's not great to see a dividend being paid despite the company being unprofitable over the last year. Earnings per share are down, and Poindus Systems' dividend has been cut at least once in the past, which is disappointing. Using these criteria, Poindus Systems looks 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for Poindus Systems (of which 1 is concerning!) you should know about.

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