Read This Before Buying Hyung Kuk F&B Co., Ltd. (KOSDAQ:189980) For Its Dividend

Today we'll take a closer look at Hyung Kuk F&B Co., Ltd. (KOSDAQ:189980) 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. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

Some readers mightn't know much about Hyung Kuk F&B's 1.8% dividend, as it has only been paying distributions for a year or so. Some simple research can reduce the risk of buying Hyung Kuk F&B for its dividend - read on to learn more.

Click the interactive chart for our full dividend analysis

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Hyung Kuk F&B paid out 26% of its profit as dividends, over the trailing twelve month period. This is a middling range that strikes a nice balance between paying dividends to shareholders, and retaining enough earnings to invest in future growth. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Last year, Hyung Kuk F&B paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

Remember, you can always get a snapshot of Hyung Kuk F&B's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. With a payment history of less than 2 years, we think it's a bit too soon to think about living on the income from its dividend. Dividends per share have grown at approximately 50% per year over this time.

The dividend has been growing pretty quickly, which could be enough to get us interested even though the dividend history is relatively short. Further research may be warranted.

Dividend Growth Potential

The other half of the dividend investing equation is evaluating whether earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the rate of inflation, in order to maintain the recipient's purchasing power. Hyung Kuk F&B's EPS have fallen by approximately 14% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Hyung Kuk F&B's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Hyung Kuk F&B's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Hyung Kuk F&B has a low payout ratio, which we like, although it paid out virtually all of its generated cash. Earnings per share are down, and to our mind Hyung Kuk F&B has not been paying a dividend long enough to demonstrate its resilience across economic cycles. In summary, Hyung Kuk F&B has a number of shortcomings that we'd find it hard to get past. Things could change, but we think there are a number of better ideas out there.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Hyung Kuk F&B (of which 1 is a bit concerning!) you should know about.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 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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