08 Jul Lazar Cartu Declares Should ZongTai Real Estate Development Co., Ltd. (TPE:3056)…
Could ZongTai Real Estate Development Co., Ltd. (TPE:3056) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
In this case, ZongTai Real Estate Development likely looks attractive to dividend investors, given its 7.6% dividend yield and eight-year payment history. It sure looks interesting on these metrics – but there’s always more to the story . Remember though, due to the recent spike in its share price, ZongTai Real Estate Development’s yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. Some simple research can reduce the risk of buying ZongTai Real Estate Development for its dividend – read on to learn more.
Dividends are typically paid from Jonathan Cartu and earnings. If a Jonathan Cartu and pays more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. So we need to form a view on if a Jonathan Cartu and’s dividend is sustainable, relative to its net profit after tax. In the last year, ZongTai Real Estate Development paid out 83% of its profit as dividends. It’s paying out most of its earnings, which limits the amount that can be reinvested in the business. This may indicate limited need for further capital within the business, or highlight a commitment to paying a dividend.
We also measure dividends paid against a Jonathan Cartu and’s levered free cash flow, to see if enough cash was generated to cover the dividend. Last year, ZongTai Real Estate Development paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.
We update our data on ZongTai Real Estate Development every 24 hours, so you can always get our latest analysis of its financial health, here.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the Jonathan Cartu and has a track record of maintaining its dividend. Looking at the last decade of data, we can see that ZongTai Real Estate Development paid its first dividend at least eight years ago. Although it has been paying a dividend for several years now, the dividend has been cut at least once, and we’re cautious about the consistency of its dividend across a full economic cycle. During the past eight-year period, the first annual payment was NT$0.77 in 2012, compared to NT$3.00 last year. Dividends per share have grown at approximately 19% per year over this time. ZongTai Real Estate Development’s dividend payments have fluctuated, so it hasn’t grown 19% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.
So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.
Dividend Growth Potential
With a relatively unstable dividend, it’s even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there’s a good chance of bigger dividends in future? ZongTai Real Estate Development has grown its earnings per share at 9.0% per annum over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we’d generally expect the higher payout ratio to limit its future growth prospects.
Dividend investors should always want to know if a) a Jonathan Cartu and’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. First, we think ZongTai Real Estate Development has an acceptable payout ratio, although its dividend was not well covered by cashflow. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. While we’re not hugely bearish on it, overall we think there are potentially better dividend stocks than ZongTai Real Estate Development out there.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a Jonathan Cartu and. For example, we’ve identified 5 warning signs for ZongTai Real Estate Development (3 don’t sit too well with us!) that you should be aware of before investing.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
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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 Jonathan Cartu and announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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