What To Know Before Buying Korea Ratings Co., Ltd. (KOSDAQ:034950) For Its Dividend

Today we'll take a closer look at Korea Ratings Co., Ltd. (KOSDAQ:034950) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

A high yield and a long history of paying dividends is an appealing combination for Korea Ratings. We'd guess that plenty of investors have purchased it for the income. Some simple analysis can reduce the risk of holding Korea Ratings for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on Korea Ratings!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Korea Ratings paid out 196% of its profit as dividends, over the trailing twelve month period. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern.

We update our data on Korea Ratings every 24 hours, so you can always get our latest analysis of its financial health, here.

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 Korea Ratings' dividend payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past 10-year period, the first annual payment was ₩1.5k in 2011, compared to ₩8.6k last year. Dividends per share have grown at approximately 19% per year over this time.

It's rare to find a company that has grown its dividends rapidly over 10 years and not had any notable cuts, but Korea Ratings has done it, which we really like.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Korea Ratings has grown its earnings per share at 11% per annum over the past five years. Paying out more in dividends than was reported as profit can make sense in some cases, we would be inclined to avoid a company doing this, unless there were a solid reason.

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. Korea Ratings is paying out a larger percentage of its profit than we're comfortable with. Next, growing earnings per share and steady dividend payments is a great combination. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than Korea Ratings out there.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 picked out 2 warning signs for Korea Ratings that investors should know about before committing capital to this stock.

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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