Is Yummy Town (Cayman) Holdings Corporation (GTSM:2726) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Unfortunately, it’s common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
With a goodly-sized dividend yield despite a relatively short payment history, investors might be wondering if Yummy Town (Cayman) Holdings is a new dividend aristocrat in the making. It sure looks interesting on these metrics – but there’s always more to the story. Some simple analysis can reduce the risk of holding Yummy Town (Cayman) Holdings for its dividend, and we’ll focus on the most important aspects below.
Explore this interactive chart for our latest analysis on Yummy Town (Cayman) Holdings!
Payout ratios
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company’s dividend is sustainable, relative to its net profit after tax. In the last year, Yummy Town (Cayman) Holdings paid out 101,388% of its profit as dividends. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern.
We also measure dividends paid against a company’s levered free cash flow, to see if enough cash was generated to cover the dividend. Yummy Town (Cayman) Holdings’ cash payout ratio in the last year was 49%, which suggests dividends were well covered by cash generated by the business. It’s disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Yummy Town (Cayman) Holdings fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we’d view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
With a strong net cash balance, Yummy Town (Cayman) Holdings investors may not have much to worry about in the near term from a dividend perspective.
Consider getting our latest analysis on Yummy Town (Cayman) Holdings’ financial position here.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Looking at the data, we can see that Yummy Town (Cayman) Holdings has been paying a dividend for the past six years. It’s good to see that Yummy Town (Cayman) Holdings has been paying a dividend for a number of years. However, the dividend has been cut at least once in the past, and we’re concerned that what has been cut once, could be cut again. During the past six-year period, the first annual payment was NT$1.7 in 2014, compared to NT$2.4 last year. Dividends per share have grown at approximately 5.5% per year over this time. The growth in dividends has not been linear, but the CAGR is a decent approximation of the rate of change over this time frame.
A reasonable rate of dividend growth is good to see, but we’re wary that the dividend history is not as solid as we’d like, having been cut at least once.
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? Yummy Town (Cayman) Holdings’ EPS have fallen by approximately 75% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.
Conclusion
To summarise, shareholders should always check that Yummy Town (Cayman) Holdings’ dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We’re not keen on the fact that Yummy Town (Cayman) Holdings paid out such a high percentage of its income, although its cashflow is in better shape. Earnings per share have been falling, and the company has cut its dividend at least once in the past. From a dividend perspective, this is a cause for concern. In summary, Yummy Town (Cayman) Holdings has a number of shortcomings that we’d find it hard to get past. Things could change, but we think there are likely more attractive alternatives out there.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we’ve identified 6 warning signs for Yummy Town (Cayman) Holdings (2 are a bit concerning!) that you should be aware of before investing.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 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 company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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November 09, 2020 at 08:31AM
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Do Investors Have Good Reason To Be Wary Of Yummy Town (Cayman) Holdings Corporation’s (GTSM:2726) 3.9% Dividend Yield? - Simply Wall St
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