Stock Analysis

Is Loop Telecommunication International,Inc. (TPE:3025) A Great Dividend Stock?

TWSE:3025
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Is Loop Telecommunication International,Inc. (TPE:3025) 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.

While Loop Telecommunication InternationalInc's 2.0% dividend yield is not the highest, we think its lengthy payment history is quite interesting. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

Click the interactive chart for our full dividend analysis

historic-dividend
TSEC:3025 Historic Dividend February 27th 2021

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. 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 53% of Loop Telecommunication InternationalInc's profits were paid out as dividends in the last 12 months. This is a healthy payout ratio, and while it does limit the amount of earnings that can be reinvested in the business, there is also some room to lift the payout ratio over time.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Loop Telecommunication InternationalInc paid out 129% of its free cash flow last year, which we think is concerning if cash flows do not improve. 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. Were it to repeatedly pay dividends that were not well covered by cash flow, this could be a risk to Loop Telecommunication InternationalInc's ability to maintain its dividend.

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

Consider getting our latest analysis on Loop Telecommunication InternationalInc's 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. For the purpose of this article, we only scrutinise the last decade of Loop Telecommunication InternationalInc's dividend 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 2011, compared to NT$0.6 last year. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame.

A shrinking dividend over a 10-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.

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 54% 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

To summarise, shareholders should always check that Loop Telecommunication InternationalInc's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Loop Telecommunication InternationalInc gets a pass on its dividend payout ratio, but it paid out virtually all of its cash flow as dividends. This may just be a one-off, but we'd keep an eye on this. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. Ultimately, Loop Telecommunication InternationalInc comes up short on our dividend analysis. It's not that we think it is a bad company - just that there are likely more appealing dividend prospects out there on this analysis.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 3 warning signs for Loop Telecommunication InternationalInc that investors should take into consideration.

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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