Should You Buy Wonlim Corporation (KRX:005820) For Its Upcoming Dividend?

Readers hoping to buy Wonlim Corporation (KRX:005820) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Wonlim investors that purchase the stock on or after the 27th of December will not receive the dividend, which will be paid on the 28th of April.

The company's next dividend payment will be ₩500.00 per share, and in the last 12 months, the company paid a total of ₩500 per share. Based on the last year's worth of payments, Wonlim has a trailing yield of 3.9% on the current stock price of ₩12750.00. 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 Wonlim has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Wonlim

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Wonlim has a low and conservative payout ratio of just 18% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. The good news is it paid out just 10% of its free cash flow in the last year.

It's positive to see that Wonlim'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 Wonlim paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Wonlim earnings per share are up 2.9% per annum over the last five years. Growth has been anaemic. Yet with more than 75% of its earnings being kept in the business, there is ample room to reinvest in growth or lift the payout ratio - either of which could increase the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Wonlim has delivered 16% dividend growth per year on average over the past five years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

Should investors buy Wonlim for the upcoming dividend? Earnings per share have been growing moderately, and Wonlim is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. 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 Wonlim is halfway there. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Wonlim for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 3 warning signs for Wonlim and you should be aware of them before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.