Is It Worth Considering KD Chem Co., Ltd. (KOSDAQ:221980) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see KD Chem Co., Ltd. (KOSDAQ:221980) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 29th of December to receive the dividend, which will be paid on the 14th of April.

KD Chem's upcoming dividend is ₩500 a share, following on from the last 12 months, when the company distributed a total of ₩500 per share to shareholders. Last year's total dividend payments show that KD Chem has a trailing yield of 3.6% on the current share price of ₩13900. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for KD Chem

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. KD Chem paid out just 25% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. The good news is it paid out just 18% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit KD Chem paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see KD Chem's earnings per share have dropped 22% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

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

Final Takeaway

Should investors buy KD Chem for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

On that note, you'll want to research what risks KD Chem is facing. For example, we've found 2 warning signs for KD Chem that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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