The Case For NongShim Holdings Co.,Ltd. (KRX:072710): Could It Be A Nice Addition To Your Dividend Portfolio?

Is NongShim Holdings Co.,Ltd. (KRX:072710) 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 2.5% yield is nothing to get excited about, but investors probably think the long payment history suggests NongShim HoldingsLtd has some staying power. Some simple research can reduce the risk of buying NongShim HoldingsLtd for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on NongShim HoldingsLtd!

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. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Looking at the data, we can see that 14% of NongShim HoldingsLtd's profits were paid out as dividends in the last 12 months. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. NongShim HoldingsLtd's cash payout ratio in the last year was 40%, which suggests dividends were well covered by cash generated by the business. It's positive to see that NongShim HoldingsLtd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Consider getting our latest analysis on NongShim 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. NongShim HoldingsLtd has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. Its most recent annual dividend was ₩2.0k per share, effectively flat on its first payment 10 years ago.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Earnings have grown at around 7.5% a year for the past five years, which is better than seeing them shrink! A low payout ratio and strong historical earnings growth suggests NongShim HoldingsLtd has been effectively reinvesting in its business. We think this generally bodes well for its dividend prospects.

Conclusion

To summarise, shareholders should always check that NongShim HoldingsLtd's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that NongShim HoldingsLtd has low and conservative payout ratios. Second, earnings growth has been mediocre, but at least the dividends have been relatively stable. Overall we think NongShim HoldingsLtd scores well on our analysis. It's not quite perfect, but we'd definitely be keen to take a closer look.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for NongShim HoldingsLtd that investors should know about before committing capital to this stock.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding 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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