It Might Not Be A Great Idea To Buy Kolon Plastics, Inc. (KRX:138490) For Its Next Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Kolon Plastics, Inc. (KRX:138490) is about to go ex-dividend in just 3 days. You will need to purchase shares before the 29th of December to receive the dividend, which will be paid on the 23rd of April.

Kolon Plastics's upcoming dividend is ₩70.00 a share, following on from the last 12 months, when the company distributed a total of ₩70.00 per share to shareholders. Based on the last year's worth of payments, Kolon Plastics has a trailing yield of 1.6% on the current stock price of ₩4470. 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.

View our latest analysis for Kolon Plastics

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. Kolon Plastics paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Kolon Plastics didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 10% of its cash flow last year.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Kolon Plastics was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

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

We update our analysis on Kolon Plastics every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Is Kolon Plastics worth buying for its dividend? It's hard to get used to Kolon Plastics paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think Kolon Plastics is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of Kolon Plastics don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 1 warning sign for Kolon Plastics 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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