Does It Make Sense To Buy CROWNHAITAI Holdings Co.,Ltd. (KRX:005740) For Its Yield?

Is CROWNHAITAI Holdings Co.,Ltd. (KRX:005740) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

A slim 1.1% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, CROWNHAITAI HoldingsLtd could have potential. During the year, the company also conducted a buyback equivalent to around 1.4% of its market capitalisation. Some simple analysis can reduce the risk of holding CROWNHAITAI HoldingsLtd for its dividend, and we'll focus on the most important aspects below.

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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. Although it reported a loss over the past 12 months, CROWNHAITAI HoldingsLtd currently pays a dividend. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

CROWNHAITAI HoldingsLtd paid out 6.6% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable.

Consider getting our latest analysis on CROWNHAITAI HoldingsLtd's financial position 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 CROWNHAITAI HoldingsLtd's dividend payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was ₩152 in 2011, compared to ₩100 last year. The dividend has shrunk at around 4.1% a year during that period. CROWNHAITAI HoldingsLtd's dividend hasn't shrunk linearly at 4.1% per annum, but the CAGR is a useful estimate of the historical rate of change.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? CROWNHAITAI HoldingsLtd's EPS have fallen by approximately 40% 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 CROWNHAITAI HoldingsLtd's earnings per share, which support the dividend, have been anything but stable.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're a bit uncomfortable with the company paying a dividend while being loss-making, although at least the dividend was covered by free cash flow. Earnings per share are down, and CROWNHAITAI HoldingsLtd's dividend has been cut at least once in the past, which is disappointing. In summary, CROWNHAITAI HoldingsLtd 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.

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. Just as an example, we've come accross 3 warning signs for CROWNHAITAI HoldingsLtd you should be aware of, and 2 of them are potentially serious.

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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