It Might Not Be A Great Idea To Buy Saeron Automotive Corporation (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 Corporation (KRX:075180) is about to go ex-dividend in just 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Saeron Automotive's shares on or after the 27th of December will not receive the dividend, which will be paid on the 9th of April.

The company's next dividend payment will be ₩140.00 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 4.2% on the current share price of ₩3340.00. If you buy this business for its dividend, you should have an idea of whether Saeron Automotive's dividend is reliable and sustainable. So we need to investigate whether Saeron Automotive can afford its dividend, and if the dividend could grow.

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. Last year Saeron Automotive paid out 99% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Saeron Automotive generated enough free cash flow to afford its dividend. The good news is it paid out just 24% of its free cash flow in the last year.

It's good to see that while Saeron Automotive's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Saeron Automotive's earnings per share have dropped 18% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Saeron Automotive has seen its dividend decline 1.4% per annum on average over the past five years, which is not great to see.

The Bottom Line

Should investors buy Saeron Automotive for the upcoming dividend? It's never great to see earnings per share declining, especially when a company is paying out 99% of its profit as dividends, which we feel is uncomfortably high. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in Saeron Automotive's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Saeron Automotive.

Although, if you're still interested in Saeron Automotive and want to know more, you'll find it very useful to know what risks this stock faces. Every company has risks, and we've spotted 3 warning signs for Saeron Automotive you should know about.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.