Are Dividend Traders Fallacious With Kwong Lung Enterprise Co., Ltd. (GTSM: 8916)?

Does Kwong Lung Enterprise Co., Ltd. (GTSM: 8916) is an effective dividend-paying inventory? How can we inform? Firms that pay dividends and develop earnings might be very rewarding in the long term. Sadly, it is common for traders to be drawn to the seemingly engaging yield and lose cash when the corporate has to chop dividend funds.

On this case, Kwong Lung Enterprise most likely seems to be engaging to traders, given its 7.6% dividend yield and a cost historical past of over ten years. We’ll assume that many traders purchased it for revenue. There are a number of simple methods to scale back the danger of shopping for Kwong Lung Enterprise for its dividend, and we’ll have a look at them under.

Discover this interactive graph for our newest evaluation on Kwong Lung Enterprise!

GTSM: 8916 Historic Dividend February 26, 2021

Payout ratios

Dividends are typically paid out of the corporate’s earnings. If an organization pays extra dividends than it has earned, then the dividend could grow to be unsustainable – this isn’t a great scenario. So we’ve to ask ourselves whether or not an organization’s dividend is sustainable, relative to its internet revenue after tax. Final 12 months, Kwong Lung Enterprise paid out 130% of its earnings as dividends. Except there are extenuating circumstances, from the angle of an investor who hopes to personal the enterprise for a few years, a payout ratio above 100% is actually a priority.

Along with evaluating dividends to earnings, we have to test whether or not the corporate has generated sufficient money to pay its dividend. Of the free money circulate generated final 12 months, Kwong Lung Enterprise paid 31% dividends, which means that the dividend is inexpensive. It is good to see that if Kwong Lung Enterprise dividends weren’t lined by earnings, they’re a minimum of inexpensive from a money circulate perspective. If executives had been to proceed paying extra dividends than the corporate declared earnings, we might take this as a warning signal. Only a few corporations are capable of sustainably pay dividends larger than their declared earnings.

We replace our information on Kwong Lung Enterprise each 24 hours, so you may all the time get our newest evaluation of its monetary well being, right here.

Dividend volatility

One of many main dangers of habit to dividend revenue is the chance for an organization to battle financially and cut back its dividend. Not solely does your revenue lower, however the worth of your funding additionally decreases – disagreeable. For the needs of this text, we’re trying solely on the final decade of Kwong Lung Enterprise dividend funds. This dividend has been risky, which we outline as having been diminished a number of occasions throughout this era. Up to now 10 years, the primary annual cost was NT $ 0.7 in 2011, in comparison with NT $ 3.0 final 12 months. This works out to a compound annual development price (CAGR) of round 17% per 12 months throughout that point. Dividends have not grown at precisely 17% yearly, however it’s a helpful option to common the historic development price.

So its dividends grew at a fast price throughout this era, however the payouts had been diminished prior to now. The inventory should still be value contemplating as a part of a diversified dividend portfolio.

Potential for dividend development

With a comparatively risky dividend, it’s much more vital to evaluate whether or not earnings per share (EPS) is rising – it’s not value taking the danger of decreasing the dividend, except you might be rewarded with extra dividends. vital sooner or later. Over the previous 5 years, it seems that Kwong Lung Enterprise’s EPS has declined by round 8.6% per 12 months. A slight drop in earnings per share is not nice to see, however that does not routinely make a dividend unsustainable. Nonetheless, we might a lot desire to see EPS development when in search of dividend paying shares.

Conclusion

Dividend traders ought to all the time need to know if a) an organization’s dividends are inexpensive, b) if there’s a historical past of constant funds, and c) if the dividend is able to rising. We’re slightly uncomfortable with its excessive payout ratio, though a minimum of the dividend has been lined by free money circulate. Earnings per share are down and the corporate has reduce its dividend a minimum of as soon as prior to now. From a dividend perspective, this can be a supply of concern. Primarily based on this data, we consider that Kwong Lung Enterprise will not be a great dividend-paying inventory.

Traders have a tendency to favor corporations with a constant and steady dividend coverage over these with an irregular coverage. Nevertheless, there are different issues for traders to think about when analyzing the efficiency of shares. For instance, we’ve chosen 2 warning indicators for Kwong Lung Enterprise that traders ought to contemplate.

On the lookout for extra excessive yield dividend concepts? Strive our checklist of dividend paying shares with a yield above 3%.

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This Merely Wall St article is common in nature. It’s not a advice to purchase or promote any inventory, and doesn’t take note of your objectives or your monetary scenario. We purpose to convey you long-term, focused evaluation primarily based on basic information. Notice that our evaluation could not take note of the most recent bulletins from worth delicate corporations or qualitative data. Merely Wall St has no place in any of the shares talked about.
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About Myra R.

Myra R.

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