Dividend Investors: Don't Be Too Quick To Buy Deutsch Motors Inc. (KOSDAQ:067990) For Its Upcoming Dividend

Readers hoping to buy Deutsch Motors Inc. (KOSDAQ:067990) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Deutsch Motors' shares on or after the 29th of December will not receive the dividend, which will be paid on the 13th of April.

The company's upcoming dividend is ₩380.00 a share, following on from the last 12 months, when the company distributed a total of ₩380 per share to shareholders. Based on the last year's worth of payments, Deutsch Motors stock has a trailing yield of around 8.1% on the current share price of ₩4700.00. If you buy this business for its dividend, you should have an idea of whether Deutsch Motors's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. An unusually high payout ratio of 284% of its profit suggests something is happening other than the usual distribution of profits to shareholders. A useful secondary check can be to evaluate whether Deutsch Motors generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 34% of the free cash flow it generated, which is a comfortable payout ratio.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Deutsch Motors 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. Very few companies are able to sustainably pay dividends larger than their reported earnings.

View our latest analysis for Deutsch Motors

Click here to see how much of its profit Deutsch Motors paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Deutsch Motors's earnings per share have plummeted approximately 42% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past five years, Deutsch Motors has increased its dividend at approximately 9.2% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Deutsch Motors is already paying out 284% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

To Sum It Up

Has Deutsch Motors got what it takes to maintain its dividend payments? It's never great to see earnings per share declining, especially when a company is paying out 284% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Deutsch Motors.

With that in mind though, if the poor dividend characteristics of Deutsch Motors don't faze you, it's worth being mindful of the risks involved with this business. For example, Deutsch Motors has 5 warning signs (and 2 which are a bit unpleasant) we think you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.