Stock Analysis

Should You Buy HYUNDAI CORPORATION HOLDINGS CO., Ltd. (KRX:227840) For Its Dividend?

KOSE:A227840
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Dividend paying stocks like HYUNDAI CORPORATION HOLDINGS CO., Ltd. (KRX:227840) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

Some readers mightn't know much about HYUNDAI CORPORATION HOLDINGS's 4.3% dividend, as it has only been paying distributions for a year or so. During the year, the company also conducted a buyback equivalent to around 2.0% of its market capitalisation. Some simple analysis can reduce the risk of holding HYUNDAI CORPORATION HOLDINGS for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on HYUNDAI CORPORATION HOLDINGS!

historic-dividend
KOSE:A227840 Historic Dividend December 2nd 2020

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Looking at the data, we can see that 30% of HYUNDAI CORPORATION HOLDINGS' profits were paid out as dividends in the last 12 months. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. Plus, there is room to increase the payout ratio over time.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Last year, HYUNDAI CORPORATION HOLDINGS paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

While the above analysis focuses on dividends relative to a company's earnings, we do note HYUNDAI CORPORATION HOLDINGS' strong net cash position, which will let it pay larger dividends for a time, should it choose.

Consider getting our latest analysis on HYUNDAI CORPORATION HOLDINGS' financial position here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. 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 ₩500 per share.

Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

Dividend Growth Potential

The other half of the dividend investing equation is evaluating whether earnings per share (EPS) are growing. Growing EPS can help maintain or increase the purchasing power of the dividend over the long run. It's good to see HYUNDAI CORPORATION HOLDINGS has been growing its earnings per share at 19% a year over the past five years. Earnings per share have been growing at a good rate, and the company is paying less than half its earnings as dividends. We generally think this is an attractive combination, as it permits further reinvestment in the business.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. First, we like HYUNDAI CORPORATION HOLDINGS' low dividend payout ratio, although we're a bit concerned that it paid out a substantially higher percentage of its free cash flow. We were also glad to see it growing earnings, although its dividend history is not as long as we'd like. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than HYUNDAI CORPORATION HOLDINGS out there.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for HYUNDAI CORPORATION HOLDINGS that investors need to be conscious of moving forward.

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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