Dividend Investors: Don't Be Too Quick To Buy KEPCO Plant Service & Engineering Co.,Ltd. (KRX:051600) For Its 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 KEPCO Plant Service & Engineering Co.,Ltd. (KRX:051600) is about to go ex-dividend in just 3 days. Investors can purchase shares before the 29th of December in order to be eligible for this dividend, which will be paid on the 24th of April.

KEPCO Plant Service & EngineeringLtd's upcoming dividend is ₩1,920 a share, following on from the last 12 months, when the company distributed a total of ₩1,920 per share to shareholders. Last year's total dividend payments show that KEPCO Plant Service & EngineeringLtd has a trailing yield of 6.3% on the current share price of ₩30650. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether KEPCO Plant Service & EngineeringLtd has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for KEPCO Plant Service & EngineeringLtd

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. KEPCO Plant Service & EngineeringLtd paid out 71% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether KEPCO Plant Service & EngineeringLtd generated enough free cash flow to afford its dividend. It paid out an unsustainably high 306% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

KEPCO Plant Service & EngineeringLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

While KEPCO Plant Service & EngineeringLtd's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to KEPCO Plant Service & EngineeringLtd's ability to maintain its dividend.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by KEPCO Plant Service & EngineeringLtd's 6.4% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, KEPCO Plant Service & EngineeringLtd has lifted its dividend by approximately 6.0% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

To Sum It Up

From a dividend perspective, should investors buy or avoid KEPCO Plant Service & EngineeringLtd? KEPCO Plant Service & EngineeringLtd had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of KEPCO Plant Service & EngineeringLtd.

So if you're still interested in KEPCO Plant Service & EngineeringLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 1 warning sign for KEPCO Plant Service & EngineeringLtd you should know about.

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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