Don't Buy GMB Korea Corporation (KRX:013870) For Its Next Dividend Without Doing These Checks

GMB Korea Corporation (KRX:013870) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 20th of April.

GMB Korea's next dividend payment will be ₩30.00 per share, and in the last 12 months, the company paid a total of ₩30.00 per share. Based on the last year's worth of payments, GMB Korea has a trailing yield of 0.4% on the current stock price of ₩7370. 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 GMB Korea can afford its dividend, and if the dividend could grow.

Check out our latest analysis for GMB Korea

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. GMB Korea 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. 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 GMB Korea 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. It paid out 6.5% of its free cash flow as dividends last year, which is conservatively low.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. GMB Korea reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Unfortunately GMB Korea has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

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

The Bottom Line

Is GMB Korea worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think GMB Korea is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of GMB Korea don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 3 warning signs for GMB Korea that we strongly recommend you have a look at before investing in the company.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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