Why It Might Not Make Sense To Buy Daelim Trading Co., Ltd. (KRX:006570) For Its Upcoming Dividend

Daelim Trading Co., Ltd. (KRX:006570) stock is about to trade ex-dividend in four days. You can purchase shares before the 29th of December in order to receive the dividend, which the company will pay on the 9th of April.

Daelim Trading's upcoming dividend is ₩140 a share, following on from the last 12 months, when the company distributed a total of ₩140 per share to shareholders. Based on the last year's worth of payments, Daelim Trading has a trailing yield of 3.5% on the current stock price of ₩4030. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Daelim Trading

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. Daelim Trading reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. 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. It distributed 31% of its free cash flow as dividends, a comfortable payout level for most companies.

Click here to see how much of its profit Daelim Trading 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. Daelim Trading 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Daelim Trading's dividend payments per share have declined at 3.5% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

We update our analysis on Daelim Trading every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Is Daelim Trading an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Daelim Trading.

With that in mind though, if the poor dividend characteristics of Daelim Trading don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 3 warning signs for Daelim Trading (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the shares.

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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