Should You Buy GS Retail Co., Ltd. (KRX:007070) For Its Upcoming Dividend?

GS Retail Co., Ltd. (KRX:007070) stock is about to trade ex-dividend in 4 days. You will need to purchase shares before the 29th of December to receive the dividend, which will be paid on the 31st of March.

GS Retail's next dividend payment will be ₩750 per share, and in the last 12 months, the company paid a total of ₩750 per share. Based on the last year's worth of payments, GS Retail has a trailing yield of 2.2% on the current stock price of ₩34450. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for GS Retail

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. GS Retail paid out a comfortable 34% of its profit last year. 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. Luckily it paid out just 9.9% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see GS Retail earnings per share are up 8.7% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. GS Retail has delivered 11% dividend growth per year on average over the past nine years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Is GS Retail an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and GS Retail is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but GS Retail is being conservative with its dividend payouts and could still perform reasonably over the long run. GS Retail looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks GS Retail is facing. Every company has risks, and we've spotted 2 warning signs for GS Retail you should know about.

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.

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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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