Don't Race Out To Buy SHINSEGAE FOOD Inc. (KRX:031440) Just Because It's Going Ex-Dividend

SHINSEGAE FOOD Inc. (KRX:031440) stock is about to trade ex-dividend in 3 days. You can purchase shares before the 29th of December in order to receive the dividend, which the company will pay on the 13th of April.

SHINSEGAE FOOD's upcoming dividend is ₩750 a share, following on from the last 12 months, when the company distributed a total of ₩750 per share to shareholders. Calculating the last year's worth of payments shows that SHINSEGAE FOOD has a trailing yield of 1.2% on the current share price of ₩64900. 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 check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for SHINSEGAE FOOD

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. SHINSEGAE FOOD paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If SHINSEGAE FOOD didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. SHINSEGAE FOOD was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the SHINSEGAE FOOD dividends are largely the same as they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

Remember, you can always get a snapshot of SHINSEGAE FOOD's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

From a dividend perspective, should investors buy or avoid SHINSEGAE FOOD? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with SHINSEGAE FOOD. To help with this, we've discovered 2 warning signs for SHINSEGAE FOOD (1 makes us a bit uncomfortable!) that you ought to be aware of before buying the shares.

If you're in the market for dividend stocks, we recommend checking our list of top 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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