It Might Not Be A Great Idea To Buy FarmStory Co., Ltd. (KOSDAQ:027710) For Its Next Dividend

FarmStory Co., Ltd. (KOSDAQ:027710) stock is about to trade ex-dividend in 3 days. Ex-dividend means that investors that purchase the stock on or after the 29th of December will not receive this dividend, which will be paid on the 21st of April.

FarmStory's upcoming dividend is ₩25.00 a share, following on from the last 12 months, when the company distributed a total of ₩25.00 per share to shareholders. Calculating the last year's worth of payments shows that FarmStory has a trailing yield of 2.2% on the current share price of ₩1135. 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! So we need to investigate whether FarmStory can afford its dividend, and if the dividend could grow.

View our latest analysis for FarmStory

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. FarmStory 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. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If FarmStory 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. FarmStory paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. FarmStory reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. FarmStory's dividend payments per share have declined at 6.7% per year on average over the past 10 years, which is uninspiring. 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.

We update our analysis on FarmStory every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

From a dividend perspective, should investors buy or avoid FarmStory? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not that we think FarmStory is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering FarmStory as an investment, you'll find it beneficial to know what risks this stock is facing. For example, FarmStory has 3 warning signs (and 2 which can't be ignored) we think you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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