Investors In EVERDIGM Corp. (KOSDAQ:041440) Should Consider This, First

Is EVERDIGM Corp. (KOSDAQ:041440) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

While EVERDIGM's 0.6% dividend yield is not the highest, we think its lengthy payment history is quite interesting. That said, the recent jump in the share price will make EVERDIGM's dividend yield look smaller, even though the company prospects could be improving. Some simple research can reduce the risk of buying EVERDIGM for its dividend - read on to learn more.

Click the interactive chart for our full dividend analysis

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Although it reported a loss over the past 12 months, EVERDIGM currently pays a dividend. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

EVERDIGM's cash payout ratio last year was 2.2%, which is quite low and suggests that the dividend was thoroughly covered by cash flow.

Consider getting our latest analysis on EVERDIGM's financial position here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of EVERDIGM's dividend payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was ₩130 in 2011, compared to ₩40.0 last year. This works out to a decline of approximately 69% over that time.

A shrinking dividend over a 10-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.

Dividend Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. Over the past five years, it looks as though EVERDIGM's EPS have declined at around 37% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and EVERDIGM's earnings per share, which support the dividend, have been anything but stable.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're a bit uncomfortable with the company paying a dividend while being loss-making, although at least the dividend was covered by free cash flow. Earnings per share are down, and EVERDIGM's dividend has been cut at least once in the past, which is disappointing. In summary, EVERDIGM has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are a number of better ideas out there.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for EVERDIGM (1 can't be ignored!) that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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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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