Do These 3 Checks Before Buying Ilshin Spinning Co., Ltd (KRX:003200) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Ilshin Spinning Co., Ltd (KRX:003200) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 29th of December to receive the dividend, which will be paid on the 3rd of April.

Ilshin Spinning's upcoming dividend is ₩1,500 a share, following on from the last 12 months, when the company distributed a total of ₩1,500 per share to shareholders. Calculating the last year's worth of payments shows that Ilshin Spinning has a trailing yield of 1.8% on the current share price of ₩81700. 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 Ilshin Spinning has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Ilshin Spinning

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ilshin Spinning paid out 116% 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. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 153% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Ilshin Spinning 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.

Cash is slightly more important than profit from a dividend perspective, but given Ilshin Spinning's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

Click here to see how much of its profit Ilshin Spinning paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Ilshin Spinning's earnings per share have plummeted approximately 34% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Ilshin Spinning's dividend payments per share have declined at 5.0% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

To Sum It Up

Is Ilshin Spinning worth buying for its dividend? Not only are earnings per share declining, but Ilshin Spinning is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a clearly suboptimal combination that usually suggests the dividend is at risk of being cut. If not now, then perhaps in the future. It's not that we think Ilshin Spinning is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Ilshin Spinning and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that Ilshin Spinning is showing 4 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

When trading Ilshin Spinning or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.