Stock Analysis

Could Loop Telecommunication International,Inc. (TPE:3025) Have The Makings Of Another Dividend Aristocrat?

TWSE:3025
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Could Loop Telecommunication International,Inc. (TPE:3025) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

While Loop Telecommunication InternationalInc's 2.0% dividend yield is not the highest, we think its lengthy payment history is quite interesting. That said, the recent jump in the share price will make Loop Telecommunication InternationalInc's dividend yield look smaller, even though the company prospects could be improving. Some simple research can reduce the risk of buying Loop Telecommunication InternationalInc for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Loop Telecommunication InternationalInc!

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TSEC:3025 Historic Dividend November 29th 2020

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. 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, Loop Telecommunication InternationalInc paid out 53% of its profit as dividends. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Loop Telecommunication InternationalInc paid out 129% of its free cash flow last year, suggesting the dividend is poorly covered by cash flow. While Loop Telecommunication InternationalInc's dividends were covered by the company's reported profits, free cash flow is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Loop Telecommunication InternationalInc to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

Remember, you can always get a snapshot of Loop Telecommunication InternationalInc'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. Loop Telecommunication InternationalInc has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was NT$0.6 in 2010, compared to NT$0.6 last year. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame.

We struggle to make a case for buying Loop Telecommunication InternationalInc for its dividend, given that payments have shrunk over the past 10 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. It's good to see Loop Telecommunication InternationalInc has been growing its earnings per share at 44% a year over the past five years. With recent, rapid earnings per share growth and a payout ratio of 53%, this business looks like an interesting prospect if earnings are reinvested effectively.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. First, the company has a payout ratio that was within an average range for most dividend stocks, but it paid out virtually all of its generated cash flow. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. In sum, we find it hard to get excited about Loop Telecommunication InternationalInc from a dividend perspective. It's not that we think it's a bad business; just that there are other companies that perform better on these criteria.

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. As an example, we've identified 2 warning signs for Loop Telecommunication InternationalInc that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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Valuation is complex, but we're helping make it simple.

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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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