Dividend Investors: Don't Be Too Quick To Buy M.I.TECH Co.,Ltd (KOSDAQ:179290) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that M.I.TECH Co.,Ltd (KOSDAQ:179290) is about to go ex-dividend in just three days. 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 3rd of April.

M.I.TECHLtd's next dividend payment will be ₩50.00 per share, on the back of last year when the company paid a total of ₩50.00 to shareholders. Calculating the last year's worth of payments shows that M.I.TECHLtd has a trailing yield of 1.1% on the current share price of ₩4355. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for M.I.TECHLtd

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. Fortunately M.I.TECHLtd's payout ratio is modest, at just 27% of profit. A useful secondary check can be to evaluate whether M.I.TECHLtd generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 253% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

M.I.TECHLtd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

M.I.TECHLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were M.I.TECHLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit M.I.TECHLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. M.I.TECHLtd's earnings per share have fallen at approximately 26% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Given that M.I.TECHLtd has only been paying a dividend for a year, there's not much of a past history to draw insight from.

The Bottom Line

From a dividend perspective, should investors buy or avoid M.I.TECHLtd? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though M.I.TECHLtd is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering M.I.TECHLtd as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 2 warning signs for M.I.TECHLtd you should know about.

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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