There's A Lot To Like About Kumho Petrochemical's (KRX:011780) Upcoming ₩1,500 Dividend

Kumho Petrochemical Co., Ltd. (KRX:011780) stock is about to trade ex-dividend in 4 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 25th of March.

Kumho Petrochemical's next dividend payment will be ₩1,500 per share. Last year, in total, the company distributed ₩1,500 to shareholders. Based on the last year's worth of payments, Kumho Petrochemical has a trailing yield of 1.1% on the current stock price of ₩138500. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Kumho Petrochemical

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. Kumho Petrochemical is paying out just 14% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Kumho Petrochemical generated enough free cash flow to afford its dividend. It paid out 6.1% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Kumho Petrochemical'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 the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Kumho Petrochemical has grown its earnings rapidly, up 26% a year for the past five years. Kumho Petrochemical looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Kumho Petrochemical has delivered 4.1% dividend growth per year on average over the past 10 years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Is Kumho Petrochemical worth buying for its dividend? Kumho Petrochemical has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Kumho Petrochemical, and we would prioritise taking a closer look at it.

While it's tempting to invest in Kumho Petrochemical for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 2 warning signs for Kumho Petrochemical you should know about.

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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