SGC E&C (KOSDAQ:016250) Is Paying Out A Dividend Of ₩500.00

SGC E&C Co., Ltd.'s (KOSDAQ:016250) investors are due to receive a payment of ₩500.00 per share on 20th of April. This means the annual payment is 4.1% of the current stock price, which is above the average for the industry.

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SGC E&C Might Find It Hard To Continue The Dividend

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Despite not generating a profit, SGC E&C is still paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Looking forward, earnings per share could 26.8% over the next year if the trend of the last few years can't be broken. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

View our latest analysis for SGC E&C

SGC E&C's Dividend Has Lacked Consistency

SGC E&C has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2019, the dividend has gone from ₩455.17 total annually to ₩500.00. This works out to be a compound annual growth rate (CAGR) of approximately 1.6% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. SGC E&C's earnings per share has shrunk at 27% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

An additional note is that the company has been raising capital by issuing stock equal to 55% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

SGC E&C's Dividend Doesn't Look Great

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, the dividend is not reliable enough to make this a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, SGC E&C has 5 warning signs (and 4 which are potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.