Here's What We Like About E-MART's (KRX:139480) Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see E-MART Inc. (KRX:139480) 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 20th of April.

E-MART's next dividend payment will be ₩2,000 per share, and in the last 12 months, the company paid a total of ₩2,000 per share. Looking at the last 12 months of distributions, E-MART has a trailing yield of approximately 1.3% on its current stock price of ₩151000. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether E-MART can afford its dividend, and if the dividend could grow.

Check out our latest analysis for E-MART

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. E-MART is paying out just 9.2% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 87% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that E-MART'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.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see E-MART's earnings per share have risen 16% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

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

To Sum It Up

Should investors buy E-MART for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, E-MART paid out less than half its earnings and a bit over half its free cash flow. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in E-MART for the dividends alone, you should always be mindful of the risks involved. For example, E-MART has 3 warning signs (and 1 which is significant) we think 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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