Don't Buy SAMICK MUSICAL INSTRUMENT Co., Ltd (KRX:002450) For Its Next Dividend Without Doing These Checks

SAMICK MUSICAL INSTRUMENT Co., Ltd (KRX:002450) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Therefore, if you purchase SAMICK MUSICAL INSTRUMENT's shares on or after the 27th of December, you won't be eligible to receive the dividend, when it is paid on the 23rd of April.

The company's next dividend payment will be ₩50.00 per share, and in the last 12 months, the company paid a total of ₩50.00 per share. Based on the last year's worth of payments, SAMICK MUSICAL INSTRUMENT has a trailing yield of 4.2% on the current stock price of ₩1183.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for SAMICK MUSICAL INSTRUMENT

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. SAMICK MUSICAL INSTRUMENT paid out 138% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 10% of its cash flow last year.

It's good to see that while SAMICK MUSICAL INSTRUMENT's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit SAMICK MUSICAL INSTRUMENT 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. SAMICK MUSICAL INSTRUMENT's earnings per share have plummeted approximately 32% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. SAMICK MUSICAL INSTRUMENT's dividend payments are broadly unchanged compared to where they were five years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

Final Takeaway

Is SAMICK MUSICAL INSTRUMENT an attractive dividend stock, or better left on the shelf? It's never great to see earnings per share declining, especially when a company is paying out 138% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of SAMICK MUSICAL INSTRUMENT.

Although, if you're still interested in SAMICK MUSICAL INSTRUMENT and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 4 warning signs for SAMICK MUSICAL INSTRUMENT (1 can't be ignored!) that you ought to be aware of before buying the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.