Don't Race Out To Buy Shinwha Intertek Corp. (KOSDAQ:056700) Just Because It's Going Ex-Dividend

Shinwha Intertek Corp. (KOSDAQ:056700) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 29th of December to receive the dividend, which will be paid on the 24th of April.

Shinwha Intertek'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. Based on the last year's worth of payments, Shinwha Intertek stock has a trailing yield of around 1.6% on the current share price of ₩3160. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Shinwha Intertek has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Shinwha Intertek

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Shinwha Intertek is paying out an acceptable 72% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow last year.

It's positive to see that Shinwha Intertek'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 how much of its profit Shinwha Intertek paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Shinwha Intertek's 26% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Shinwha Intertek's dividend payments are effectively flat on where they were 10 years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

To Sum It Up

Is Shinwha Intertek worth buying for its dividend? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. To summarise, Shinwha Intertek looks okay on this analysis, although it doesn't appear a stand-out opportunity.

However if you're still interested in Shinwha Intertek as a potential investment, you should definitely consider some of the risks involved with Shinwha Intertek. Every company has risks, and we've spotted 3 warning signs for Shinwha Intertek you should know about.

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.

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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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