Is It Smart To Buy Dongwon Industries Co., Ltd. (KRX:006040) Before It Goes Ex-Dividend?

Dongwon Industries Co., Ltd. (KRX:006040) stock is about to trade ex-dividend in four days. Investors can purchase shares before the 29th of December in order to be eligible for this dividend, which will be paid on the 21st of April.

Dongwon Industries's next dividend payment will be ₩2,000 per share, and in the last 12 months, the company paid a total of ₩2,000 per share. Calculating the last year's worth of payments shows that Dongwon Industries has a trailing yield of 0.9% on the current share price of ₩219000. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Dongwon Industries has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Dongwon Industries

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Dongwon Industries is paying out just 4.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 2.0% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Dongwon Industries's earnings per share have been growing at 20% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Dongwon Industries's dividend payments per share have declined at 2.2% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Is Dongwon Industries an attractive dividend stock, or better left on the shelf? Dongwon Industries has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Dongwon Industries for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 3 warning signs for Dongwon Industries that we strongly recommend you have a look at before investing in the company.

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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