Only Three Days Left To Cash In On STO's (KOSDAQ:098660) Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see STO Co., Ltd. (KOSDAQ:098660) is about to trade ex-dividend in the next 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, STO investors that purchase the stock on or after the 29th of December will not receive the dividend, which will be paid on the 27th of April.

The company's next dividend payment will be ₩40.00 per share, and in the last 12 months, the company paid a total of ₩40.00 per share. Based on the last year's worth of payments, STO stock has a trailing yield of around 2.3% on the current share price of ₩1742.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. STO lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.

View our latest analysis for STO

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. STO was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. STO's dividend payments per share have declined at 13% per year on average over the past six years, which is uninspiring.

We update our analysis on STO every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Has STO got what it takes to maintain its dividend payments? It's hard to get used to STO paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

If you're not too concerned about STO's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, STO has 3 warning signs (and 1 which is potentially serious) 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.