Be Sure To Check Out Kolon Industries, Inc. (KRX:120110) Before It Goes Ex-Dividend

It looks like Kolon Industries, Inc. (KRX:120110) is about to go ex-dividend in the next 3 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 23rd of April.

Kolon Industries's next dividend payment will be ₩900 per share. Last year, in total, the company distributed ₩900 to shareholders. Based on the last year's worth of payments, Kolon Industries has a trailing yield of 2.2% on the current stock price of ₩40050. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Kolon Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Kolon Industries paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Kolon Industries generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 15% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Kolon Industries has grown its earnings rapidly, up 29% a year for the past five years. Kolon Industries 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. Kolon Industries has seen its dividend decline 2.8% per annum on average over the past 10 years, which is not great to see. Kolon Industries is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

From a dividend perspective, should investors buy or avoid Kolon Industries? It's great that Kolon Industries is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

So while Kolon Industries looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. We've identified 4 warning signs with Kolon Industries (at least 2 which can't be ignored), and understanding these should be part of your investment process.

If you're in the market for dividend stocks, we recommend checking our list of top 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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