Here's What We Like About Hanwha's (KRX:000880) Upcoming 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 Hanwha Corporation (KRX:000880) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 3rd of April.

Hanwha's next dividend payment will be ₩700 per share, on the back of last year when the company paid a total of ₩700 to shareholders. Last year's total dividend payments show that Hanwha has a trailing yield of 2.5% on the current share price of ₩27950. If you buy this business for its dividend, you should have an idea of whether Hanwha's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Hanwha

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Hanwha paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 3.5% of its free cash flow last year.

It's positive to see that Hanwha's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Hanwha's earnings per share have risen 11% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Hanwha has delivered 1.6% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because Hanwha is keeping back more of its profits to grow the business.

Final Takeaway

Has Hanwha got what it takes to maintain its dividend payments? Hanwha has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Hanwha for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Hanwha you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top 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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