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Does Kee Tai Properties Co. Ltd. (TPE: 2538) is a good dividend-paying stock? How can we tell? Companies that pay dividends and grow profits can be very rewarding in the long run. On the other hand, it is known that investors buy a stock because of its performance and then lose money if the dividend of the company does not meet expectations.
In this case, Kee Tai Properties probably looks attractive to dividend investors, given its 4.6% dividend yield and nine-year payment history. It sounds interesting on these metrics – but there’s always more to tell. When buying stocks for their dividends, you should always go through the checks below to see if the dividend looks sustainable.
Click on the interactive chart for our full dividend analysis
Payout ratios
Dividends are generally paid out of company profits. If a company pays more in dividends than it has earned, then the dividend can become unsustainable – which is hardly an ideal situation. Comparing dividend payments to a company’s after-tax net income is an easy way to test real-life whether a dividend is sustainable. Although it has declared a loss in the past 12 months, Kee Tai Properties is currently paying a dividend. When a company is in deficit, we then need to check whether its cash flow can support the dividend.
Unfortunately, while Kee Tai Properties is paying a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it is not ideal from a dividend standpoint.
We update our data on Kee Tai Properties every 24 hours, so you can always get our latest analysis of its financial health, here.
Dividend volatility
Before buying a stock for income, we want to see if dividends have been stable in the past and if the company has a history of maintaining its dividend. The first dividend recorded for Kee Tai Properties in the last decade dates back nine years. It is good to see that Kee Tai Properties has been paying a dividend for several years. However, the dividend has been cut at least once in the past and we are concerned that what was cut once will be cut again. For the past nine years, the first annual payment was NT $ 1.3 in 2012, compared to NT $ 0.5 last year. Dividend payments have fallen sharply, down 62% during this period.
When a company’s dividend per share declines, we ask ourselves whether this is a poor reflection of external business conditions or the company’s capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.
Potential for dividend growth
With a relatively volatile dividend and a bad dividend reduction history, it’s even more important to see if EPS rises. Kee Tai Properties’ EPS has fallen approximately 66% per year over the past five years. A sharp drop in earnings per share isn’t terrible from a dividend standpoint, as even conservative payout ratios can be under pressure if earnings fall enough.
Conclusion
In summary, shareholders should always verify that Kee Tai Properties’ dividends are affordable, that its dividend payments are relatively stable, and that it has a decent outlook for its earnings and dividend growth. We are a little uncomfortable with the fact that Kee Tai Properties is paying a dividend while being in deficit, especially since the dividend was also not well covered by free cash flow. Second, earnings per share have declined and its dividend has been reduced at least once in the past. There are a few too many issues for us to be comfortable with Kee Tai Properties from a dividend perspective. Businesses can change, but we would be hard pressed to identify why an investor should rely on this stock for their income.
Market movements attest to the high value of a coherent dividend policy compared to a more unpredictable one. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. For example, we have identified 3 warning signs for Kee Tai Properties (2 are a little worrying!) Which you should be aware of before investing.
If you’re a dividend investor, you might also want to check out our curated list of dividend-paying stocks that have a yield above 3%.
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This Simply Wall St article is general in nature. It is not a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in the mentioned stocks.
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