Don't Buy Vitzro Tech Co. Ltd (KOSDAQ:042370) For Its Next Dividend Without Doing These Checks

Vitzro Tech Co. Ltd (KOSDAQ:042370) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Vitzro Tech's shares before the 27th of December in order to be eligible for the dividend, which will be paid on the 7th of April.

The company's next dividend payment will be ₩50.00 per share, on the back of last year when the company paid a total of ₩50.00 to shareholders. Based on the last year's worth of payments, Vitzro Tech has a trailing yield of 0.7% on the current stock price of ₩6740.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Vitzro Tech

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Vitzro Tech distributed an unsustainably high 140% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether Vitzro Tech generated enough free cash flow to afford its dividend. It distributed 33% of its free cash flow as dividends, a comfortable payout level for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Vitzro Tech fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Vitzro Tech's earnings have collapsed faster than Wile E Coyote's schemes to trap the Road Runner; down a tremendous 43% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Vitzro Tech's dividend payments are broadly unchanged compared to where they were six years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

The Bottom Line

Is Vitzro Tech worth buying for its dividend? It's never great to see earnings per share declining, especially when a company is paying out 140% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering Vitzro Tech as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 1 warning sign for Vitzro Tech that you should be aware of before investing in their shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.