Is It Smart To Buy K&S Corporation Limited (ASX:KSC) Before It Goes Ex-Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that K&S Corporation Limited (ASX:KSC) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order 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. This means that investors who purchase K&S' shares on or after the 21st of March will not receive the dividend, which will be paid on the 3rd of April.

The company's next dividend payment will be AU$0.10 per share, on the back of last year when the company paid a total of AU$0.20 to shareholders. Looking at the last 12 months of distributions, K&S has a trailing yield of approximately 8.0% on its current stock price of A$2.485. If you buy this business for its dividend, you should have an idea of whether K&S's dividend is reliable and sustainable. As a result, readers should always check whether K&S has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for K&S

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 78% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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. Luckily it paid out just 5.3% of its free cash flow last year.

It's positive to see that K&S'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.

Click here to see how much of its profit K&S paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see K&S has grown its earnings rapidly, up 27% a year for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. K&S has delivered an average of 5.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because K&S is keeping back more of its profits to grow the business.

To Sum It Up

From a dividend perspective, should investors buy or avoid K&S? We like K&S's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.

So while K&S looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 2 warning signs for K&S you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.