Is It'S Hanbul Co., Ltd.'s (KRX:226320) 0.4% Dividend Sustainable?

Could It'S Hanbul Co., Ltd. (KRX:226320) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

Investors might not know much about It'S Hanbul's dividend prospects, even though it has been paying dividends for the last five years and offers a 0.4% yield. While the yield may not look too great, the relatively long payment history is interesting. There are a few simple ways to reduce the risks of buying It'S Hanbul for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on It'S Hanbul!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. 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, It'S Hanbul currently pays a dividend. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

Of the free cash flow it generated last year, It'S Hanbul paid out 46% as dividends, suggesting the dividend is affordable.

While the above analysis focuses on dividends relative to a company's earnings, we do note It'S Hanbul's strong net cash position, which will let it pay larger dividends for a time, should it choose.

Remember, you can always get a snapshot of It'S Hanbul's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Looking at the data, we can see that It'S Hanbul has been paying a dividend for the past five years. During the past five-year period, the first annual payment was ₩958 in 2016, compared to ₩100 last year. The dividend has fallen 90% over that period.

We struggle to make a case for buying It'S Hanbul for its dividend, given that payments have shrunk over the past five years.

Dividend Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. It'S Hanbul's earnings per share have shrunk at 65% a year over the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and It'S Hanbul's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that It'S Hanbul's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. 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 It'S Hanbul's dividend has been cut at least once in the past, which is disappointing. With this information in mind, we think It'S Hanbul may not be an ideal dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for It'S Hanbul that investors should take into consideration.

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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