Is Wiscom Co.,Ltd. (KRX:024070) A Smart Choice For Dividend Investors?

Today we'll take a closer look at Wiscom Co.,Ltd. (KRX:024070) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

While WiscomLtd's 1.3% dividend yield is not the highest, we think its lengthy payment history is quite interesting. That said, the recent jump in the share price will make WiscomLtd's dividend yield look smaller, even though the company prospects could be improving. There are a few simple ways to reduce the risks of buying WiscomLtd for its dividend, and we'll go through these below.

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Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Although it reported a loss over the past 12 months, WiscomLtd currently pays a dividend. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.

WiscomLtd paid out a conservative 47% of its free cash flow as dividends last year.

While the above analysis focuses on dividends relative to a company's earnings, we do note WiscomLtd's strong net cash position, which will let it pay larger dividends for a time, should it choose.

Consider getting our latest analysis on WiscomLtd's financial position here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. WiscomLtd has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. While its dividends have not been hugely volatile, its most recent dividend is still meaningfully below where it was 10 years ago. During the past 10-year period, the first annual payment was ₩294 in 2011, compared to ₩50.0 last year. The dividend has fallen 83% over that period.

We struggle to make a case for buying WiscomLtd for its dividend, given that payments have shrunk over the past 10 years.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. WiscomLtd's EPS have fallen by approximately 37% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and WiscomLtd's earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that WiscomLtd's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. We're not keen on the fact that WiscomLtd paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. It's not great to see earnings per share shrinking. The dividends have been relatively consistent, but we wonder for how much longer this will be true. While we're not hugely bearish on it, overall we think there are potentially better dividend stocks than WiscomLtd out there.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come accross 4 warning signs for WiscomLtd you should be aware of, and 1 of them shouldn't be ignored.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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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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