Is Redhorse Group Co. Ltd. (GTSM: 2928) a good dividend? How can we tell? Companies that pay dividends and grow profits can be very rewarding in the long run. Unfortunately, it’s common for investors to be drawn to the seemingly attractive yield and lose money when the company has to cut dividend payments.
With a five-year payment history and a 4.1% return, many investors are likely to find Redhorse Group Ltd intriguing. We agree that the return looks attractive. A simple analysis can offer a lot of information when buying a business for its dividend, and we’ll go over it below.
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Dividends are generally paid out of the company’s profits. If a business pays more than it earns, the dividend can become unsustainable – it’s not 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 Redhorse GroupLtd pays a dividend, it has declared a loss in the past year. When a company recently reported a loss, we should look to see if its cash flow covered the dividend.
Last year Redhorse Group Ltd paid a dividend while reporting negative free cash flow. While there may be an explanation, we believe this behavior is generally not sustainable.
We update our data on Redhorse GroupLtd every 24 hours, so you can always get our latest analysis of its financial health, here.
One of the major risks of addiction to dividend income is the possibility for a company to struggle financially and reduce its dividend. Not only does your income decrease, but the value of your investment also decreases – unpleasant. Redhorse GroupLtd has been paying a dividend for five years. In the past five years, the first annual payment was NT $ 0.9 in 2016, compared to NT $ 1.0 last year. This works out to a compound annual growth rate (CAGR) of about 1.0% per year during that time. Redhorse GroupLtd’s dividend payouts have fluctuated, so it hasn’t increased 1.0% every year, but the CAGR is a useful rule of thumb for estimating historical growth.
Modest dividend growth is good to see, but we believe this is offset by historic reductions in payments. It is difficult to live on dividend income if the company’s profits are not consistent.
Potential for dividend growth
With a relatively volatile dividend, it is even more important to assess whether earnings per share (EPS) is increasing – it is not worth taking the risk of reducing the dividend, unless you are rewarded with more dividends. important in the future. Redhorse GroupLtd’s EPS has fallen by around 30% per year over the past five years. With this kind of significant decline, one always wonders what has changed in the business. Dividends are a matter of stability, and earnings per share of Redhorse Group Ltd, which backs the dividend, has been anything but stable.
Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a history of consistent payments, and c) if the dividend is capable of growing. Redhorse GroupLtd’s dividend is not well covered by free cash flow, and it paid a dividend while being unprofitable. Earnings per share are down and the company has cut its dividend at least once in the past. From a dividend perspective, this is a source of concern. There are a few too many issues for us to be comfortable with Redhorse GroupLtd 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.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an irregular policy. At the same time, there are other factors that our readers should be aware of before injecting capital into a stock. For example, we have identified 3 warning signs for Redhorse GroupLtd (1 cannot be ignored!) Which you should be aware of before investing.
If you are a dividend investor, you can also check out our curated list of dividend stocks that have a yield above 3%.
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This Simply Wall St article is general in nature. It does not constitute 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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