Why It Might Not Make Sense To Buy Hwaseung R&A Co., Ltd. (KRX:013520) For Its Upcoming Dividend

Hwaseung R&A Co., Ltd. (KRX:013520) is about to trade ex-dividend in the next four 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 6th of April.

Hwaseung R&A's next dividend payment will be ₩25.00 per share. Last year, in total, the company distributed ₩25.00 to shareholders. Calculating the last year's worth of payments shows that Hwaseung R&A has a trailing yield of 1.1% on the current share price of ₩2175. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Hwaseung R&A

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Hwaseung R&A paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. The good news is it paid out just 2.9% of its free cash flow in the last year.

Click here to see how much of its profit Hwaseung R&A paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Hwaseung R&A 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Hwaseung R&A dividends are largely the same as they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

Get our latest analysis on Hwaseung R&A's balance sheet health here.

To Sum It Up

Is Hwaseung R&A worth buying for its dividend? It's hard to get used to Hwaseung R&A paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Hwaseung R&A. For example, we've found 3 warning signs for Hwaseung R&A (2 don't sit too well with us!) that deserve your attention before investing in the 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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