Changhae Ethanol Co., Ltd. (KOSDAQ:004650) Is About To Go Ex-Dividend, And It Pays A 5.8% Yield

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Changhae Ethanol Co., Ltd. (KOSDAQ:004650) is about to trade ex-dividend in the next three days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Changhae Ethanol's shares before the 29th of December to receive the dividend, which will be paid on the 15th of April.

The company's next dividend payment will be ₩600.00 per share, on the back of last year when the company paid a total of ₩600 to shareholders. Calculating the last year's worth of payments shows that Changhae Ethanol has a trailing yield of 5.8% on the current share price of ₩10310.00. 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 investigate whether Changhae Ethanol can afford its dividend, and if the dividend could grow.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Changhae Ethanol paying out a modest 41% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 40% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Changhae Ethanol

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Changhae Ethanol's earnings per share have dropped 10% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Changhae Ethanol has delivered an average of 1.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.

To Sum It Up

Is Changhae Ethanol worth buying for its dividend? Changhae Ethanol has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Changhae Ethanol's dividend merits.

So while Changhae Ethanol looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To that end, you should learn about the 2 warning signs we've spotted with Changhae Ethanol (including 1 which makes us a bit uncomfortable).

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.