Is Hanil Chemical Ind. Co., Ltd. (KOSDAQ:007770) A Good Dividend Stock?

Is Hanil Chemical Ind. Co., Ltd. (KOSDAQ:007770) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

A 1.3% yield is nothing to get excited about, but investors probably think the long payment history suggests Hanil Chemical Ind has some staying power. Some simple research can reduce the risk of buying Hanil Chemical Ind for its dividend - read on to learn more.

Click the interactive chart for our full dividend analysis

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. Although it reported a loss over the past 12 months, Hanil Chemical Ind 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.

Unfortunately, while Hanil Chemical Ind pays a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it's not ideal from a dividend perspective.

We update our data on Hanil Chemical Ind every 24 hours, so you can always get our latest analysis of its financial health, here.

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. Hanil Chemical Ind has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. This company's dividend has not fluctuated wildly, but its dividend per share payments have still decreased substantially over this time, which is not ideal. During the past 10-year period, the first annual payment was ₩250 in 2011, compared to ₩150 last year. The dividend has shrunk at around 5.0% a year during that period.

When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Hanil Chemical Ind's EPS have fallen by approximately 19% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Hanil Chemical Ind's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Hanil Chemical Ind's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Hanil Chemical Ind's dividend is not well covered by free cash flow, plus it paid a dividend while being unprofitable. Second, earnings per share have actually shrunk, but at least the dividends have been relatively stable. Using these criteria, Hanil Chemical Ind looks quite suboptimal from a dividend investment perspective.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Hanil Chemical Ind has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 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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