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Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Thai Kin Co., Ltd. (GTSM:6629) is about to trade ex-dividend in the next two days. Investors can purchase shares before the 15th of April in order to be eligible for this dividend, which will be paid on the 20th of May.
Thai Kin’s next dividend payment will be NT$4.49 per share. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it’s growing.
See our latest analysis for Thai Kin
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Thai Kin paid out 68% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Dividends consumed 56% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.
It’s positive to see that Thai Kin’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit Thai Kin paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Thai Kin’s earnings per share have fallen at approximately 6.7% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
This is Thai Kin’s first year of paying a dividend, which is exciting for shareholders – but it does mean there’s no dividend history to examine.
The Bottom Line
Has Thai Kin got what it takes to maintain its dividend payments? It’s never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We’re aware though that if earnings continue to decline, the dividend could be at risk. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.
Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Thai Kin. For example – Thai Kin has 4 warning signs we think you should be aware of.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
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