Here's Why We're Wary Of Buying Ecoplastic's (KOSDAQ:038110) For Its Upcoming Dividend

Ecoplastic Corporation (KOSDAQ:038110) is about to trade ex-dividend in the next three 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 17th of April.

Ecoplastic's upcoming dividend is ₩30.00 a share, following on from the last 12 months, when the company distributed a total of ₩30.00 per share to shareholders. Looking at the last 12 months of distributions, Ecoplastic has a trailing yield of approximately 1.5% on its current stock price of ₩1990. If you buy this business for its dividend, you should have an idea of whether Ecoplastic's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Ecoplastic

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. Ecoplastic reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Ecoplastic didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Luckily it paid out just 1.7% of its free cash flow last year.

Click here to see how much of its profit Ecoplastic 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 fall far enough, the company could be forced to cut its dividend. Ecoplastic was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Ecoplastic'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.

Remember, you can always get a snapshot of Ecoplastic's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Has Ecoplastic got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in Ecoplastic despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 3 warning signs for Ecoplastic (of which 1 is potentially serious!) 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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