Dividend Investors: Don't Be Too Quick To Buy Korea Petroleum Industries Company (KRX:004090) For Its Upcoming Dividend

Korea Petroleum Industries Company (KRX:004090) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 24th of April.

Korea Petroleum Industries's next dividend payment will be ₩1,500 per share. Last year, in total, the company distributed ₩1,500 to shareholders. Calculating the last year's worth of payments shows that Korea Petroleum Industries has a trailing yield of 1.5% on the current share price of ₩97200. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Korea Petroleum Industries has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Korea Petroleum Industries

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. Korea Petroleum Industries lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Korea Petroleum Industries didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 4.6% of its cash flow last year.

Click here to see how much of its profit Korea Petroleum Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Korea Petroleum Industries was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Korea Petroleum Industries has increased its dividend at approximately 7.2% a year on average.

Get our latest analysis on Korea Petroleum Industries's balance sheet health here.

The Bottom Line

Should investors buy Korea Petroleum Industries for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Bottom line: Korea Petroleum Industries has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Korea Petroleum Industries. We've identified 4 warning signs with Korea Petroleum Industries (at least 2 which shouldn't be ignored), and understanding these should be part of your investment process.

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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