Should You Buy Asia Holdings Co., Ltd. (KRX:002030) For Its Upcoming Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Asia Holdings Co., Ltd. (KRX:002030) is about to go ex-dividend in just four days. This means that investors who purchase shares on or after the 29th of December will not receive the dividend, which will be paid on the 2nd of April.

Asia Holdings's next dividend payment will be ₩1,750 per share. Last year, in total, the company distributed ₩1,750 to shareholders. Calculating the last year's worth of payments shows that Asia Holdings has a trailing yield of 2.0% on the current share price of ₩87900. 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 Asia Holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Asia Holdings

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. Asia Holdings paid out just 9.2% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 15% 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 Asia Holdings paid out over the last 12 months.

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. With that in mind, we're encouraged by the steady growth at Asia Holdings, with earnings per share up 2.3% on average over the last five years. Asia Holdings is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Asia Holdings has lifted its dividend by approximately 5.8% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Should investors buy Asia Holdings for the upcoming dividend? Earnings per share growth has been growing somewhat, and Asia Holdings 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. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Asia Holdings is halfway there. There's a lot to like about Asia Holdings, and we would prioritise taking a closer look at it.

While it's tempting to invest in Asia Holdings for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with Asia Holdings and understanding them should be part of your investment process.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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