Don't Race Out To Buy Korea Parts & Fasteners Co.,Ltd (KOSDAQ:024880) Just Because It's Going Ex-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 Korea Parts & Fasteners Co.,Ltd (KOSDAQ:024880) is about to go ex-dividend in just three days. This means that investors who purchase shares on or after the 29th of December will not receive the dividend, which will be paid on the 24th of April.

Korea Parts & FastenersLtd's next dividend payment will be ₩130 per share, on the back of last year when the company paid a total of ₩160 to shareholders. Looking at the last 12 months of distributions, Korea Parts & FastenersLtd has a trailing yield of approximately 3.2% on its current stock price of ₩5050. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Korea Parts & FastenersLtd has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Korea Parts & FastenersLtd

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. Korea Parts & FastenersLtd reported a loss last year, so it's not great to see that it has continued paying a dividend. 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. The good news is it paid out just 11% of its free cash flow in the last year.

Click here to see how much of its profit Korea Parts & FastenersLtd 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. Korea Parts & FastenersLtd was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Korea Parts & FastenersLtd has delivered an average of 4.8% per year annual increase in its dividend, based on the past 10 years of dividend payments.

We update our analysis on Korea Parts & FastenersLtd every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Has Korea Parts & FastenersLtd got what it takes to maintain its dividend payments? 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 Korea Parts & FastenersLtd 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 Korea Parts & FastenersLtd don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 5 warning signs for Korea Parts & FastenersLtd that we strongly recommend you have a look at before investing in the company.

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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