Why It Might Not Make Sense To Buy Ssangyong Cement Industrial Co., Ltd. (KRX:003410) For Its Upcoming Dividend

It looks like Ssangyong Cement Industrial Co., Ltd. (KRX:003410) is about to go ex-dividend in the next four days. You can purchase shares before the 29th of December in order to receive the dividend, which the company will pay on the 24th of April.

Ssangyong Cement Industrial's next dividend payment will be ₩110 per share. Last year, in total, the company distributed ₩440 to shareholders. Based on the last year's worth of payments, Ssangyong Cement Industrial stock has a trailing yield of around 6.3% on the current share price of ₩7000. If you buy this business for its dividend, you should have an idea of whether Ssangyong Cement Industrial's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Ssangyong Cement Industrial

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Ssangyong Cement Industrial distributed an unsustainably high 178% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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 company paid out 104% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.

Cash is slightly more important than profit from a dividend perspective, but given Ssangyong Cement Industrial's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

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

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Ssangyong Cement Industrial's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past two years, Ssangyong Cement Industrial has increased its dividend at approximately 56% a year on average.

The Bottom Line

Is Ssangyong Cement Industrial worth buying for its dividend? Not only are earnings per share flat, but Ssangyong Cement Industrial is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. It's not that we think Ssangyong Cement Industrial is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering Ssangyong Cement Industrial as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 2 warning signs for Ssangyong Cement Industrial (1 is significant!) that deserve your attention before investing in the shares.

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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