It Might Not Be A Great Idea To Buy The Nature Holdings Co., Ltd. (KOSDAQ:298540) For Its Next Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see The Nature Holdings Co., Ltd. (KOSDAQ:298540) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible 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. Therefore, if you purchase Nature Holdings' shares on or after the 29th of December, you won't be eligible to receive the dividend, when it is paid on the 14th of April.

The company's next dividend payment will be ₩500.00 per share, and in the last 12 months, the company paid a total of ₩500 per share. Looking at the last 12 months of distributions, Nature Holdings has a trailing yield of approximately 5.4% on its current stock price of ₩9210.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Nature Holdings is paying out an acceptable 73% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Nature Holdings generated enough free cash flow to afford its dividend. It paid out 88% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

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.

Check out our latest analysis for Nature Holdings

Click here to see how much of its profit Nature Holdings 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 Nature Holdings's earnings per share have dropped 16% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

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, Nature Holdings has increased its dividend at approximately 20% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

The Bottom Line

Is Nature Holdings worth buying for its dividend? While earnings per share are shrinking, it's encouraging to see that at least Nature Holdings's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Nature Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. To that end, you should learn about the 3 warning signs we've spotted with Nature Holdings (including 1 which is a bit concerning).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.