Dividend paying stocks like Daelim Industrial Co., Ltd. (KRX:000210) tend to be popular with investors, and for good reason – some research suggests a significant amount of all stock market returns come from reinvested dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company’s dividend doesn’t live up to expectations.
While Daelim Industrial’s 1.6% dividend yield is not the highest, we think its lengthy payment history is quite interesting. That said, the recent jump in the share price will make Daelim Industrial’s dividend yield look smaller, even though the company prospects could be improving. Some simple research can reduce the risk of buying Daelim Industrial for its dividend – read on to learn more.
Click the interactive chart for our full dividend analysis
Payout ratios
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable – hardly an ideal situation. Comparing dividend payments to a company’s net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 9.0% of Daelim Industrial’s profits were paid out as dividends in the last 12 months. We’d say its dividends are thoroughly covered by earnings.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Daelim Industrial’s cash payout ratio last year was 7.4%, which is quite low and suggests that the dividend was thoroughly covered by cash flow. It’s positive to see that Daelim Industrial’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.
While the above analysis focuses on dividends relative to a company’s earnings, we do note Daelim Industrial’s strong net cash position, which will let it pay larger dividends for a time, should it choose.
Remember, you can always get a snapshot of Daelim Industrial’s latest financial position, by checking our visualisation of its financial health.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Daelim Industrial’s dividend payments. Its dividend payments have declined on at least one occasion over the past ten years. During the past ten-year period, the first annual payment was ₩100.00 in 2010, compared to ₩1,300 last year. Dividends per share have grown at approximately 29% per year over this time. The dividends haven’t grown at precisely 29% every year, but this is a useful way to average out the historical rate of growth.
So, its dividends have grown at a rapid rate over this time, but payments have been cut in the past. The stock may still be worth considering as part of a diversified dividend portfolio.
Dividend Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It’s good to see Daelim Industrial has been growing its earnings per share at 41% a year over the past five years. Earnings per share have grown rapidly, and the company is retaining a majority of its earnings. We think this is ideal from an investment perspective, if the company is able to reinvest these earnings effectively.
Conclusion
Dividend investors should always want to know if a) a company’s dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Firstly, we like that Daelim Industrial has low and conservative payout ratios. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. All things considered, Daelim Industrial looks like a strong prospect. At the right valuation, it could be something special.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we’ve identified 4 warning signs for Daelim Industrial (1 is a bit concerning!) that you should be aware of before investing.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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This article by Simply Wall St is general in nature. 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.
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