Stock Analysis

Do Investors Have Good Reason To Be Wary Of NPK.Co.,Ltd's (KOSDAQ:048830) 1.4% Dividend Yield?

KOSDAQ:A048830
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Today we'll take a closer look at NPK.Co.,Ltd (KOSDAQ:048830) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

NPK.Co.Ltd has only been paying a dividend for a year or so, so investors might be curious about its 1.4% yield. There are a few simple ways to reduce the risks of buying NPK.Co.Ltd for its dividend, and we'll go through these below.

Click the interactive chart for our full dividend analysis

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KOSDAQ:A048830 Historic Dividend May 5th 2021

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, 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. While NPK.Co.Ltd pays a dividend, it reported a loss over the last year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

NPK.Co.Ltd paid out 51% of its cash flow as dividends last year, which is within a reasonable range for the average corporation.

Consider getting our latest analysis on NPK.Co.Ltd'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. This company has been paying a dividend for less than 2 years, which we think is too soon to consider it a reliable dividend stock. Its most recent annual dividend was ₩30.0 per share.

Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

Dividend Growth Potential

Examining whether the dividend is affordable and stable is important. However, it's also important to assess if earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the rate of inflation, in order to maintain the recipient's purchasing power. Over the past five years, it looks as though NPK.Co.Ltd's EPS have declined at around 28% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and NPK.Co.Ltd's earnings per share, which support the dividend, have been anything but stable.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're not keen on the fact that NPK.Co.Ltd paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Earnings per share have been falling, and the company has a relatively short dividend history - shorter than we like, anyway. Using these criteria, NPK.Co.Ltd looks quite suboptimal from a dividend investment perspective.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, NPK.Co.Ltd has 3 warning signs (and 1 which is potentially serious) we think you should know about.

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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