DN Automotive Corporation (KRX:007340) Looks Interesting, And It's About To Pay A Dividend

DN Automotive Corporation (KRX:007340) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase DN Automotive's shares before the 27th of February in order to receive the dividend, which the company will pay on the 1st of January.

The company's next dividend payment will be ₩600.00 per share, and in the last 12 months, the company paid a total of ₩600 per share. Last year's total dividend payments show that DN Automotive has a trailing yield of 2.8% on the current share price of ₩21650.00. 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 DN Automotive can afford its dividend, and if the dividend could grow.

Check out our latest analysis for DN Automotive

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. DN Automotive has a low and conservative payout ratio of just 14% of its income after tax. A useful secondary check can be to evaluate whether DN Automotive generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit DN Automotive paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see DN Automotive's earnings have been skyrocketing, up 35% per annum for the past five years. DN Automotive is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. DN Automotive has delivered an average of 20% per year annual increase in its dividend, based on the past six years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Is DN Automotive an attractive dividend stock, or better left on the shelf? DN Automotive has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past six years, but the conservative payout ratio makes the current dividend look sustainable. DN Automotive looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in DN Automotive for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for DN Automotive (1 is concerning!) that you ought to be aware of before buying the shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.