Is It Smart To Buy Samsung Electronics Co., Ltd. (KRX:005930) Before It Goes Ex-Dividend?

Samsung Electronics Co., Ltd. (KRX:005930) is about to trade ex-dividend in the next four days. 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Thus, you can purchase Samsung Electronics' shares before the 29th of December in order to receive the dividend, which the company will pay on the 20th of April.

The company's next dividend payment will be ₩363.00 per share, and in the last 12 months, the company paid a total of ₩1,468 per share. Based on the last year's worth of payments, Samsung Electronics stock has a trailing yield of around 1.3% on the current share price of ₩111500.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Fortunately Samsung Electronics's payout ratio is modest, at just 33% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 42% of its free cash flow in the past year.

It's positive to see that Samsung Electronics's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for Samsung Electronics

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Samsung Electronics, with earnings per share up 6.6% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Samsung Electronics has increased its dividend at approximately 14% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Samsung Electronics an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Samsung Electronics is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Samsung Electronics is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.

Wondering what the future holds for Samsung Electronics? See what the 35 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.