Why It Might Not Make Sense To Buy Chosun Refractories Co.,Ltd. (KRX:462520) For Its Upcoming Dividend

Chosun Refractories Co.,Ltd. (KRX:462520) stock is about to trade ex-dividend in four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled 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. This means that investors who purchase Chosun RefractoriesLtd's shares on or after the 31st of July will not receive the dividend, which will be paid on the 1st of January.

The company's upcoming dividend is ₩800.00 a share, following on from the last 12 months, when the company distributed a total of ₩200 per share to shareholders. Looking at the last 12 months of distributions, Chosun RefractoriesLtd has a trailing yield of approximately 1.3% on its current stock price of ₩14870.00. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Chosun RefractoriesLtd 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 cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the past year it paid out 144% of its free cash flow as dividends, which is uncomfortably 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.

Check out our latest analysis for Chosun RefractoriesLtd

Click here to see how much of its profit Chosun RefractoriesLtd 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. Chosun RefractoriesLtd was unprofitable last year, and sadly its loss per share worsened by 104% on the previous year.

Unfortunately Chosun RefractoriesLtd 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 Chosun RefractoriesLtd every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

Is Chosun RefractoriesLtd worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It's not that we think Chosun RefractoriesLtd 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 Chosun RefractoriesLtd don't faze you, it's worth being mindful of the risks involved with this business. We've identified 4 warning signs with Chosun RefractoriesLtd (at least 2 which are concerning), and understanding these should be part of your investment process.

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.