It Might Not Be A Great Idea To Buy Saeron Automotive Corp. (KRX:075180) For Its Next Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Saeron Automotive Corp. (KRX:075180) is about to go ex-dividend in just 3 days. You can purchase shares before the 29th of December in order to receive the dividend, which the company will pay on the 3rd of April.

Saeron Automotive's next dividend payment will be ₩140 per share, and in the last 12 months, the company paid a total of ₩140 per share. Calculating the last year's worth of payments shows that Saeron Automotive has a trailing yield of 2.3% on the current share price of ₩6170. 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! As a result, readers should always check whether Saeron Automotive has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Saeron 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. Saeron Automotive lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. 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. Dividends consumed 62% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Saeron Automotive 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Saeron Automotive's dividend payments per share have declined at 2.5% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

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

Final Takeaway

Is Saeron Automotive an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think Saeron Automotive is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Saeron Automotive as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Saeron Automotive is showing 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

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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