Here's Why We're Wary Of Buying NEXTEEL's (KRX:092790) For Its Upcoming Dividend

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Readers hoping to buy NEXTEEL Co., Ltd. (KRX:092790) 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. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase NEXTEEL's shares before the 19th of August in order to be eligible for the dividend, which will be paid on the 1st of January.

The company's next dividend payment will be ₩1155.00 per share, and in the last 12 months, the company paid a total of ₩250 per share. Looking at the last 12 months of distributions, NEXTEEL has a trailing yield of approximately 1.6% on its current stock price of ₩15200.00. 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! So we need to investigate whether NEXTEEL can afford its dividend, and if the dividend could grow.

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. NEXTEEL has a low and conservative payout ratio of just 12% of its income after tax. A useful secondary check can be to evaluate whether NEXTEEL generated enough free cash flow to afford its dividend. NEXTEEL paid out more free cash flow than it generated - 111%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

While NEXTEEL's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to NEXTEEL's ability to maintain its dividend.

View our latest analysis for NEXTEEL

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see NEXTEEL's earnings per share have dropped 27% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Unfortunately NEXTEEL has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

The Bottom Line

Has NEXTEEL got what it takes to maintain its dividend payments? It's disappointing to see earnings per share declining, and this would ordinarily be enough to discourage us from most dividend stocks, even though NEXTEEL is paying out less than half its income as dividends. However, it's also paying out an uncomfortably high percentage of its cash flow, which makes us wonder just how sustainable the dividend really is. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering NEXTEEL as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 2 warning signs for NEXTEEL (1 is potentially serious!) that you ought to be aware of before buying the 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.