Here's Why We're Wary Of Buying Korian's (EPA:KORI) For Its Upcoming Dividend

By
Simply Wall St
Published
May 30, 2021
ENXTPA:KORI
Source: Shutterstock

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Korian (EPA:KORI) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Korian investors that purchase the stock on or after the 4th of June will not receive the dividend, which will be paid on the 1st of July.

The company's upcoming dividend is €0.30 a share, following on from the last 12 months, when the company distributed a total of €0.30 per share to shareholders. Calculating the last year's worth of payments shows that Korian has a trailing yield of 1.0% on the current share price of €30.04. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Korian can afford its dividend, and if the dividend could grow.

View our latest analysis for Korian

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. Korian paid out more than half (70%) of its earnings last year, which is a regular payout ratio for most companies.

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

historic-dividend
ENXTPA:KORI Historic Dividend May 31st 2021

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Korian's 10% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Korian also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Korian's dividend payments per share have declined at 6.7% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

From a dividend perspective, should investors buy or avoid Korian? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. We're unconvinced on the company's merits, and think there might be better opportunities out there.

So if you want to do more digging on Korian, you'll find it worthwhile knowing the risks that this stock faces. For example, Korian has 4 warning signs (and 1 which is potentially serious) we think you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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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