There's A Lot To Like About Dongwon Systems' (KRX:014820) Upcoming ₩300.00 Dividend

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Readers hoping to buy Dongwon Systems Corporation (KRX:014820) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date generally occurs two days 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. Therefore, if you purchase Dongwon Systems' shares on or after the 22nd of August, you won't be eligible to receive the dividend, when it is paid on the 5th of September.

The company's upcoming dividend is ₩300.00 a share, following on from the last 12 months, when the company distributed a total of ₩600 per share to shareholders. Based on the last year's worth of payments, Dongwon Systems has a trailing yield of 2.0% on the current stock price of ₩30500.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. That's why it's good to see Dongwon Systems paying out a modest 29% of its earnings. 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. Fortunately, it paid out only 41% of its free cash flow in the past year.

It's positive to see that Dongwon Systems'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.

View our latest analysis for Dongwon Systems

Click here to see how much of its profit Dongwon Systems 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 Dongwon Systems, with earnings per share up 6.8% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, six years ago, Dongwon Systems has lifted its dividend by approximately 3.1% 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

From a dividend perspective, should investors buy or avoid Dongwon Systems? Earnings per share have been growing moderately, and Dongwon Systems 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. It might be nice to see earnings growing faster, but Dongwon Systems is being conservative with its dividend payouts and could still perform reasonably over the long run. Dongwon Systems looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Dongwon Systems for the dividends alone, you should always be mindful of the risks involved. For example - Dongwon Systems has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.