Do These 3 Checks Before Buying KB Autosys Co., Ltd. (KOSDAQ:024120) For Its Upcoming Dividend

KB Autosys Co., Ltd. (KOSDAQ:024120) stock is about to trade ex-dividend in 3 days. This means that investors who purchase shares on or after the 29th of December will not receive the dividend, which will be paid on the 27th of April.

KB Autosys's next dividend payment will be ₩230 per share. Last year, in total, the company distributed ₩230 to shareholders. Looking at the last 12 months of distributions, KB Autosys has a trailing yield of approximately 3.1% on its current stock price of ₩7370. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for KB Autosys

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. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. 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. It paid out 76% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that KB Autosys'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 KB Autosys paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that KB Autosys's earnings are down 2.2% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. KB Autosys has delivered 8.0% dividend growth per year on average over the past nine 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. KB Autosys is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

Should investors buy KB Autosys for the upcoming dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not that we think KB Autosys is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in KB Autosys and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 3 warning signs for KB Autosys that you should be aware of before investing in their shares.

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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