Should Heerim Architects & Planners Co., Ltd. (KOSDAQ:037440) Be Part Of Your Dividend Portfolio?

Dividend paying stocks like Heerim Architects & Planners Co., Ltd. (KOSDAQ:037440) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

In this case, Heerim Architects & Planners likely looks attractive to investors, given its 3.8% dividend yield and a payment history of over ten years. It would not be a surprise to discover that many investors buy it for the dividends. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Click the interactive chart for our full dividend analysis

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Heerim Architects & Planners paid out 51% of its profit as dividends, over the trailing twelve month period. This is a healthy payout ratio, and while it does limit the amount of earnings that can be reinvested in the business, there is also some room to lift the payout ratio over time.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Heerim Architects & Planners' cash payout ratio last year was 7.2%, which is quite low and suggests that the dividend was thoroughly covered by cash flow. It's positive to see that Heerim Architects & Planners' 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.

Remember, you can always get a snapshot of Heerim Architects & Planners' latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Heerim Architects & Planners' dividend payments. While its dividends have not been hugely volatile, its most recent dividend is still meaningfully below where it was 10 years ago. During the past 10-year period, the first annual payment was ₩200 in 2011, compared to ₩150 last year. This works out to be a decline of approximately 2.8% per year over that time.

We struggle to make a case for buying Heerim Architects & Planners for its dividend, given that payments have shrunk over the past 10 years.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Heerim Architects & Planners has grown its earnings per share at 21% per annum over the past five years. Earnings per share are sharply up, but we wonder if paying out more than half its earnings (leaving less for reinvestment) is an implicit signal that Heerim Architects & Planners' growth will be slower in the future.

Conclusion

To summarise, shareholders should always check that Heerim Architects & Planners' dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Heerim Architects & Planners' payout ratios are within a normal range for the average corporation, and we like that its cashflow was stronger than reported profits. We like that it has been delivering solid improvement in its earnings per share, and relatively consistent dividend payments. Heerim Architects & Planners performs highly under this analysis, although it falls slightly short of our exacting standards. At the right valuation, it could be a solid dividend prospect.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Heerim Architects & Planners that you should be aware of before investing.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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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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