Stock Analysis

Key Things To Consider Before Buying Dong-A Hwa Sung Co.,Ltd. (KOSDAQ:041930) For Its Dividend

KOSDAQ:A041930
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Today we'll take a closer look at Dong-A Hwa Sung Co.,Ltd. (KOSDAQ:041930) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. 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.

A 0.4% yield is nothing to get excited about, but investors probably think the long payment history suggests Dong-A Hwa SungLtd has some staying power. During the year, the company also conducted a buyback equivalent to around 0.6% of its market capitalisation. Some simple research can reduce the risk of buying Dong-A Hwa SungLtd for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Dong-A Hwa SungLtd!

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KOSDAQ:A041930 Historic Dividend March 23rd 2021

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. In the last year, Dong-A Hwa SungLtd paid out 18% of its profit as dividends. We'd say its dividends are thoroughly covered by earnings.

Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Dong-A Hwa SungLtd paid out 5.1% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable. It's positive to see that Dong-A Hwa SungLtd'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.

We update our data on Dong-A Hwa SungLtd every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Dong-A Hwa SungLtd's dividend payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past 10-year period, the first annual payment was ₩40.0 in 2011, compared to ₩50.0 last year. Dividends per share have grown at approximately 2.3% per year over this time.

While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is unappealing.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. In the last five years, Dong-A Hwa SungLtd's earnings per share have shrunk at approximately 9.7% per annum. Declining earnings per share over a number of years is not a great sign for the dividend investor. Without some improvement, this does not bode well for the long term value of a company's dividend.

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 Dong-A Hwa SungLtd has low and conservative payout ratios. Second, earnings per share have actually shrunk, but at least the dividends have been relatively stable. Overall we think Dong-A Hwa SungLtd is an interesting dividend stock, although it could be better.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Dong-A Hwa SungLtd has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 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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