Should Modetour Network Inc. (KOSDAQ:080160) Be Part Of Your Income Portfolio?

Is Modetour Network Inc. (KOSDAQ:080160) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

While Modetour Network's 0.6% dividend yield is not the highest, we think its lengthy payment history is quite interesting. During the year, the company also conducted a buyback equivalent to around 1.1% of its market capitalisation. That said, the recent jump in the share price will make Modetour Network's dividend yield look smaller, even though the company prospects could be improving. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.

Click the interactive chart for our full dividend analysis

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. Although it reported a loss over the past 12 months, Modetour Network currently pays a dividend. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Unfortunately, while Modetour Network pays a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it's not ideal from a dividend perspective.

Remember, you can always get a snapshot of Modetour Network's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Modetour Network's dividend payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was ₩21.5 in 2011, compared to ₩120 last year. Dividends per share have grown at approximately 19% per year over this time. The dividends haven't grown at precisely 19% every year, but this is a useful way to average out the historical rate of growth.

It's not great to see that the payment has been cut in the past. We're generally more wary of companies that have cut their dividend before, as they tend to perform worse in an economic downturn.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Modetour Network's earnings per share have shrunk at 40% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Modetour Network's earnings per share, which support the dividend, have been anything but stable.

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. We're a bit uncomfortable with Modetour Network paying a dividend while loss-making, especially since the dividend was also not well covered by free cash flow. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. Using these criteria, Modetour Network looks quite suboptimal from a dividend investment perspective.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 2 warning signs for Modetour Network (1 is concerning!) that you should be aware of before investing.

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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