Here's Why We're Wary Of Buying CJ Freshway's (KOSDAQ:051500) 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 CJ Freshway Corporation (KOSDAQ:051500) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 23rd of April.

CJ Freshway's next dividend payment will be ₩250 per share, on the back of last year when the company paid a total of ₩250 to shareholders. Based on the last year's worth of payments, CJ Freshway has a trailing yield of 1.3% on the current stock price of ₩18800. 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 CJ Freshway has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for CJ Freshway

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. CJ Freshway reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 22% of its free cash flow last year.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. CJ Freshway reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Given that CJ Freshway has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Get our latest analysis on CJ Freshway's balance sheet health here.

To Sum It Up

Is CJ Freshway an attractive dividend stock, or better left on the shelf? It's hard to get used to CJ Freshway paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: CJ Freshway has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of CJ Freshway don't faze you, it's worth being mindful of the risks involved with this business. Be aware that CJ Freshway is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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