Here's What We Like About Dongsung FineTec's (KOSDAQ:033500) Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Dongsung FineTec Co., Ltd. (KOSDAQ:033500) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 16th of April.

Dongsung FineTec's upcoming dividend is ₩220 a share, following on from the last 12 months, when the company distributed a total of ₩220 per share to shareholders. Based on the last year's worth of payments, Dongsung FineTec has a trailing yield of 1.9% on the current stock price of ₩11650. If you buy this business for its dividend, you should have an idea of whether Dongsung FineTec's dividend is reliable and sustainable. So we need to investigate whether Dongsung FineTec can afford its dividend, and if the dividend could grow.

View our latest analysis for Dongsung FineTec

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Dongsung FineTec has a low and conservative payout ratio of just 17% of its income after tax. A useful secondary check can be to evaluate whether Dongsung FineTec generated enough free cash flow to afford its dividend. Luckily it paid out just 17% of its free cash flow last year.

It's positive to see that Dongsung FineTec'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Dongsung FineTec earnings per share are up 8.1% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

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

Final Takeaway

From a dividend perspective, should investors buy or avoid Dongsung FineTec? Earnings per share growth has been growing somewhat, and Dongsung FineTec is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Dongsung FineTec is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Dongsung FineTec for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Dongsung FineTec you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

If you’re looking to trade Dongsung FineTec, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.