Sempio (KRX:007540) Could Be A Buy For Its Upcoming Dividend

Readers hoping to buy Sempio Company (KRX:007540) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 10th of April.

Sempio's upcoming dividend is ₩200 a share, following on from the last 12 months, when the company distributed a total of ₩200 per share to shareholders. Looking at the last 12 months of distributions, Sempio has a trailing yield of approximately 0.4% on its current stock price of ₩47850. If you buy this business for its dividend, you should have an idea of whether Sempio's dividend is reliable and sustainable. As a result, readers should always check whether Sempio has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Sempio

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Sempio has a low and conservative payout ratio of just 2.4% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 2.6% 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 Sempio paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Sempio has grown its earnings rapidly, up 29% a year for the past five years. Sempio earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sempio's dividend payments per share have declined at 2.2% per year on average over the past 10 years, which is uninspiring. Sempio is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

Final Takeaway

Is Sempio an attractive dividend stock, or better left on the shelf? We love that Sempio is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.

So while Sempio looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 1 warning sign for Sempio you should be aware of.

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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