Could SAMICK MUSICAL INSTRUMENT Co., Ltd (KRX:002450) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.
In this case, SAMICK MUSICAL INSTRUMENT likely looks attractive to investors, given its 3.3% dividend yield and a payment history of over ten years. We'd guess that plenty of investors have purchased it for the income. The company also bought back stock equivalent to around 2.8% of market capitalisation this year. There are a few simple ways to reduce the risks of buying SAMICK MUSICAL INSTRUMENT for its dividend, and we'll go through these below.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 715% of SAMICK MUSICAL INSTRUMENT's profits were paid out as dividends in the last 12 months. A payout ratio above 100% is definitely an item of concern, unless there are some other circumstances that would justify it.
We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. SAMICK MUSICAL INSTRUMENT's cash payout ratio last year was 24%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. 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. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. SAMICK MUSICAL INSTRUMENT has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was ₩30.0 in 2011, compared to ₩50.0 last year. Dividends per share have grown at approximately 5.2% per year over this time. The dividends haven't grown at precisely 5.2% every year, but this is a useful way to average out the historical rate of growth.
It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. SAMICK MUSICAL INSTRUMENT might have put its house in order since then, but we remain cautious.
Dividend Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. SAMICK MUSICAL INSTRUMENT's earnings per share have shrunk at 49% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and SAMICK MUSICAL INSTRUMENT's earnings per share, which support the dividend, have been anything but stable.
Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're not keen on the fact that SAMICK MUSICAL INSTRUMENT paid out such a high percentage of its income, although its cashflow is in better shape. Earnings per share are down, and SAMICK MUSICAL INSTRUMENT's dividend has been cut at least once in the past, which is disappointing. In summary, SAMICK MUSICAL INSTRUMENT has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are a number of better ideas out there.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come accross 4 warning signs for SAMICK MUSICAL INSTRUMENT you should be aware of, and 1 of them makes us a bit uncomfortable.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield 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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