Does Sintrones Technology Corp. (GTSM:6680) Have A Place In Your Dividend Stock Portfolio?

Is Sintrones Technology Corp. (GTSM:6680) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. 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.

In this case, Sintrones Technology pays a decent-sized 3.9% dividend yield, and has been distributing cash to shareholders for the past two years. It's certainly an attractive yield, but readers are likely curious about its staying power. The company also bought back stock equivalent to around 0.8% of market capitalisation this year. Some simple analysis can reduce the risk of holding Sintrones Technology for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Sintrones Technology!

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. In the last year, Sintrones Technology paid out 101% of its profit as dividends. 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. Sintrones Technology paid out 142% of its free cash flow last year, which we think is concerning if cash flows do not improve. Paying out such a high percentage of cash flow suggests that the dividend was funded from either cash at bank or by borrowing, neither of which is desirable over the long term. Cash is slightly more important than profit from a dividend perspective, but given Sintrones Technology's payouts were not well covered by either earnings or cash flow, we would definitely be concerned about the sustainability of this dividend.

With a strong net cash balance, Sintrones Technology investors may not have much to worry about in the near term from a dividend perspective.

We update our data on Sintrones Technology every 24 hours, so you can always get our latest analysis of its financial health, here.

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. The dividend has not fluctuated much, but with a relatively short payment history, we can't be sure this is sustainable across a full market cycle. During the past two-year period, the first annual payment was NT$2.2 in 2019, compared to NT$2.4 last year. This works out to be a compound annual growth rate (CAGR) of approximately 2.5% a year over that time.

Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Over the past five years, it looks as though Sintrones Technology's EPS have declined at around 22% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Sintrones Technology's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Sintrones Technology's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Sintrones Technology 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 to our mind Sintrones Technology has not been paying a dividend long enough to demonstrate its resilience across economic cycles. Using these criteria, Sintrones Technology 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. Case in point: We've spotted 3 warning signs for Sintrones Technology (of which 1 makes us a bit uncomfortable!) you should know about.

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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