Here's Why We're Wary Of Buying Maeil Holdings' (KOSDAQ:005990) For Its Upcoming Dividend

Maeil Holdings Co., Ltd. (KOSDAQ:005990) is about to trade ex-dividend in the next 4 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 24th of April.

Maeil Holdings's upcoming dividend is ₩140 a share, following on from the last 12 months, when the company distributed a total of ₩140 per share to shareholders. Looking at the last 12 months of distributions, Maeil Holdings has a trailing yield of approximately 1.7% on its current stock price of ₩8400. 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! As a result, readers should always check whether Maeil Holdings has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Maeil Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Maeil Holdings reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Maeil Holdings 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 distributed 29% of its free cash flow as dividends, a comfortable payout level for most companies.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Maeil Holdings 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Maeil Holdings has seen its dividend decline 6.2% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

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

The Bottom Line

Is Maeil Holdings worth buying for its dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Maeil Holdings and want to know more, you'll find it very useful to know what risks this stock faces. Be aware that Maeil Holdings is showing 3 warning signs in our investment analysis, and 1 of those can't be ignored...

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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