SM Entertainment Co., Ltd. (KOSDAQ:041510) Goes Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see SM Entertainment Co., Ltd. (KOSDAQ:041510) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase SM Entertainment's shares on or after the 27th of December will not receive the dividend, which will be paid on the 17th of April.

The company's upcoming dividend is ₩1200.00 a share, following on from the last 12 months, when the company distributed a total of ₩1,200 per share to shareholders. Based on the last year's worth of payments, SM Entertainment stock has a trailing yield of around 1.6% on the current share price of ₩75900.00. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether SM Entertainment can afford its dividend, and if the dividend could grow.

See our latest analysis for SM Entertainment

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. SM Entertainment reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If SM Entertainment 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. Over the last year, it paid out more than three-quarters (88%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. SM Entertainment was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. SM Entertainment has delivered 82% dividend growth per year on average over the past three years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Get our latest analysis on SM Entertainment's balance sheet health here.

Final Takeaway

Should investors buy SM Entertainment for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

With that being said, if dividends aren't your biggest concern with SM Entertainment, you should know about the other risks facing this business. In terms of investment risks, we've identified 1 warning sign with SM Entertainment and understanding them should be part of your investment process.

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.