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Ilshin Spinning Co., Ltd (KRX:003200) Is Yielding 1.5% - But Is It A Buy?
Could Ilshin Spinning Co., Ltd (KRX:003200) 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.
Ilshin Spinning has only been paying a dividend for a year or so, so investors might be curious about its 1.5% yield. There are a few simple ways to reduce the risks of buying Ilshin Spinning for its dividend, and we'll go through these below.
Explore this interactive chart for our latest analysis on Ilshin Spinning!
Payout ratios
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Looking at the data, we can see that 34% of Ilshin Spinning's profits were paid out as dividends in the last 12 months. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. One of the risks is that management reinvests the retained capital poorly instead of paying a higher dividend.
In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Ilshin Spinning's cash payout ratio last year was 8.7%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. It's positive to see that Ilshin Spinning's 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.
With a strong net cash balance, Ilshin Spinning investors may not have much to worry about in the near term from a dividend perspective.
We update our data on Ilshin Spinning every 24 hours, so you can always get our latest analysis of its financial health, here.
Dividend Volatility
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. With a payment history of less than 2 years, we think it's a bit too soon to think about living on the income from its dividend. Its most recent annual dividend was ₩1.5k per share.
It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.
Dividend Growth Potential
Examining whether the dividend is affordable and stable is important. However, it's also important to assess if earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the rate of inflation, in order to maintain the recipient's purchasing power. Ilshin Spinning's earnings per share have shrunk at 12% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.
Conclusion
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. It's great to see that Ilshin Spinning is paying out a low percentage of its earnings and cash flow. Earnings per share are down, and to our mind Ilshin Spinning has not been paying a dividend long enough to demonstrate its resilience across economic cycles. In sum, we find it hard to get excited about Ilshin Spinning from a dividend perspective. It's not that we think it's a bad business; just that there are other companies that perform better on these criteria.
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. To that end, Ilshin Spinning has 2 warning signs (and 1 which is significant) we think you should know about.
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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About KOSE:A003200
Ilshin Spinning
Produces and sells cotton yarns and fabrics in South Korea, Asia, the Americas, Europe, and internationally.
Flawless balance sheet and slightly overvalued.