Here's Why We're Wary Of Buying Sangsin Brake's (KRX:041650) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sangsin Brake Co., Ltd. (KRX:041650) is about to trade ex-dividend in the next three days. You will need to purchase shares before the 29th of December to receive the dividend, which will be paid on the 24th of April.

Sangsin Brake's next dividend payment will be ₩50.00 per share, and in the last 12 months, the company paid a total of ₩100.00 per share. Based on the last year's worth of payments, Sangsin Brake has a trailing yield of 3.0% on the current stock price of ₩3345. If you buy this business for its dividend, you should have an idea of whether Sangsin Brake's dividend is reliable and sustainable. So we need to investigate whether Sangsin Brake can afford its dividend, and if the dividend could grow.

See our latest analysis for Sangsin Brake

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. Sangsin Brake reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. 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. It paid out 19% of its free cash flow as dividends last year, which is conservatively low.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Sangsin Brake 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sangsin Brake's dividend payments are broadly unchanged compared to where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

We update our analysis on Sangsin Brake every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid Sangsin Brake? 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 an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Sangsin Brake don't faze you, it's worth being mindful of the risks involved with this business. For instance, we've identified 5 warning signs for Sangsin Brake (2 are concerning) you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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