Here's Why We're Wary Of Buying HD Hyundai's (KRX:267250) For Its Upcoming Dividend

HD Hyundai Co., Ltd. (KRX:267250) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase HD Hyundai's shares on or after the 27th of February will not receive the dividend, which will be paid on the 1st of January.

The company's upcoming dividend is ₩900.00 a share, following on from the last 12 months, when the company distributed a total of ₩3,700 per share to shareholders. Calculating the last year's worth of payments shows that HD Hyundai has a trailing yield of 4.8% on the current share price of ₩76600.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether HD Hyundai has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for HD Hyundai

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. HD Hyundai distributed an unsustainably high 179% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether HD Hyundai generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 8.8% of its cash flow last year.

It's good to see that while HD Hyundai's dividends were not covered by profits, at least they are affordable from a cash perspective. 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 the company's payout ratio, plus analyst estimates of its future dividends.

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. With that in mind, we're not enthused to see that HD Hyundai's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. HD Hyundai's dividend payments are broadly unchanged compared to where they were five years ago.

The Bottom Line

Has HD Hyundai got what it takes to maintain its dividend payments? Along with flat earnings per share, HD Hyundai paid out an uncomfortably high percentage of its earnings. It paid out a lower percentage of its free cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of HD Hyundai.

With that being said, if you're still considering HD Hyundai as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 2 warning signs for HD Hyundai that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.