Dividend Investors: Don't Be Too Quick To Buy Korea Refractories Co., Ltd (KRX:010040) For Its Upcoming Dividend

It looks like Korea Refractories Co., Ltd (KRX:010040) is about to go ex-dividend in the next three 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. This means that investors who purchase Korea Refractories' shares on or after the 27th of December will not receive the dividend, which will be paid on the 3rd of April.

The company's next dividend payment will be ₩45.00 per share. Last year, in total, the company distributed ₩45.00 to shareholders. Calculating the last year's worth of payments shows that Korea Refractories has a trailing yield of 2.1% on the current share price of ₩2190.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Korea Refractories

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Korea Refractories lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Korea Refractories didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 11% of its free cash flow in the last year.

Click here to see how much of its profit Korea Refractories 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Korea Refractories 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Korea Refractories has delivered 6.5% dividend growth per year on average over the past four years.

Remember, you can always get a snapshot of Korea Refractories's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

Should investors buy Korea Refractories for the upcoming dividend? It's hard to get used to Korea Refractories paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of Korea Refractories don't faze you, it's worth being mindful of the risks involved with this business. We've identified 3 warning signs with Korea Refractories (at least 1 which makes us a bit uncomfortable), and understanding them should be part of your investment process.

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.