Nasdaq
华尔街日报We Wouldn't Be Too Quick To Buy DaeChang Steel Co., Ltd. (KOSDAQ:140520) Before It Goes Ex-Dividend
Readers hoping to buy DaeChang Steel Co., Ltd. (KOSDAQ:140520) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase DaeChang Steel's shares before the 29th of December in order to be eligible for the dividend, which will be paid on the 27th of April.
The company's next dividend payment will be ₩150.00 per share, and in the last 12 months, the company paid a total of ₩150 per share. Based on the last year's worth of payments, DaeChang Steel stock has a trailing yield of around 6.6% on the current share price of ₩2265.00. 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 DaeChang Steel can afford its dividend, and if the dividend could grow.
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. Last year, DaeChang Steel paid out 247% of its profit to shareholders in the form of dividends. This is not sustainable behaviour and requires a closer look on behalf of the purchaser. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 128% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
As DaeChang Steel's dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
Check out our latest analysis for DaeChang Steel
Click here to see how much of its profit DaeChang Steel paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by DaeChang Steel's 14% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. DaeChang Steel has delivered 7.0% dividend growth per year on average over the past six years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. DaeChang Steel is already paying out 247% 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
Is DaeChang Steel worth buying for its dividend? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (247%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with DaeChang Steel. For example, DaeChang Steel has 3 warning signs (and 1 which is concerning) 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.