Do These 3 Checks Before Buying JLS Co.,Ltd. (KOSDAQ:040420) For Its Upcoming Dividend

JLS Co.,Ltd. (KOSDAQ:040420) stock is about to trade ex-dividend in 3 days. This means that investors who purchase shares on or after the 29th of December will not receive the dividend, which will be paid on the 22nd of April.

JLSLtd's upcoming dividend is ₩430 a share, following on from the last 12 months, when the company distributed a total of ₩430 per share to shareholders. Based on the last year's worth of payments, JLSLtd stock has a trailing yield of around 6.4% on the current share price of ₩6740. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for JLSLtd

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. JLSLtd distributed an unsustainably high 128% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. A useful secondary check can be to evaluate whether JLSLtd generated enough free cash flow to afford its dividend. Over the last year, it paid out more than three-quarters (75%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and JLSLtd fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit JLSLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about JLSLtd's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, JLSLtd has lifted its dividend by approximately 3.2% a year on average.

The Bottom Line

From a dividend perspective, should investors buy or avoid JLSLtd? The company has not generated any growth in earnings per share over the 10-year timeframe we measured. Plus, JLSLtd's paying out a high percentage of its earnings and more than half its cash flow. Bottom line: JLSLtd 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 JLSLtd don't faze you, it's worth being mindful of the risks involved with this business. We've identified 3 warning signs with JLSLtd (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

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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