Do These 3 Checks Before Buying Elensys Co.,Ltd. (KOSDAQ:264850) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Elensys Co.,Ltd. (KOSDAQ:264850) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 29th of December in order to receive the dividend, which the company will pay on the 29th of April.

ElensysLtd's next dividend payment will be ₩40.00 per share, on the back of last year when the company paid a total of ₩40.00 to shareholders. Based on the last year's worth of payments, ElensysLtd stock has a trailing yield of around 1.8% on the current share price of ₩2190. If you buy this business for its dividend, you should have an idea of whether ElensysLtd's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for ElensysLtd

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. ElensysLtd paid out 130% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. ElensysLtd paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

It's good to see that while ElensysLtd's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see how much of its profit ElensysLtd 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. As a result, it's definitely disappointing to see that earnings per share have declined 19% over the past year.

Unfortunately ElensysLtd has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Has ElensysLtd got what it takes to maintain its dividend payments? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (130%) and cash flow as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. Bottom line: ElensysLtd has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you're still considering ElensysLtd as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 5 warning signs for ElensysLtd and you should be aware of them before buying any shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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