Is Genomics BioSci & Tech. Co.,Ltd. (GTSM:4195) 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 your dividends, it’s important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you’ll find our analysis useful.
Genomics BioSci & Tech.Ltd has only been paying a dividend for a year or so, so investors might be curious about its 7.0% yield. There are a few simple ways to reduce the risks of buying Genomics BioSci & Tech.Ltd for its dividend, and we’ll go through these below.
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable – hardly an ideal situation. 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 504% of Genomics BioSci & Tech.Ltd’s profits were paid out as dividends in the last 12 months. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.
With a strong net cash balance, Genomics BioSci & Tech.Ltd investors may not have much to worry about in the near term from a dividend perspective.
Remember, you can always get a snapshot of Genomics BioSci & Tech.Ltd’s latest financial position, by checking our visualisation of its financial health.
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well – nasty. This company has been paying a dividend for less than 2 years, which we think is too soon to consider it a reliable dividend stock. Its most recent annual dividend was NT$1.2 per share.
It’s good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn’t want to depend on this dividend too heavily.
Dividend Growth Potential
The other half of the dividend investing equation is evaluating whether earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the rate of inflation, in order to maintain the recipient’s purchasing power. It’s good to see Genomics BioSci & Tech.Ltd has been growing its earnings per share at 31% a year over the past five years. The company has been growing its EPS at a very rapid rate, while paying out virtually all of its income as dividends. While EPS could grow fast enough to make the dividend sustainable, in this type of situation, we’d want to pay extra attention to any fragilities in the company’s balance sheet.
Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. First, it’s not great to see how much of its earnings are being paid as dividends. Next, earnings growth has been good, but unfortunately the company has not been paying dividends as long as we’d like. In summary, we’re unenthused by Genomics BioSci & Tech.Ltd as a dividend stock. It’s not that we think it is a bad company; it simply falls short of our criteria in some key areas.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we’ve identified 4 warning signs for Genomics BioSci & Tech.Ltd that investors need to be conscious of moving forward.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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