Should You Buy AfreecaTV Co., Ltd. (KOSDAQ:067160) For Its Upcoming Dividend In 1 Days?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see AfreecaTV Co., Ltd. (KOSDAQ:067160) is about to trade ex-dividend in the next 1 days. If you purchase the stock on or after the 27th of December, you won't be eligible to receive this dividend, when it is paid on the 17th of April.

AfreecaTV's next dividend payment will be ₩470 per share. Last year, in total, the company distributed ₩470 to shareholders. Based on the last year's worth of payments, AfreecaTV stock has a trailing yield of around 0.7% on the current share price of ₩68900. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for AfreecaTV

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. AfreecaTV has a low and conservative payout ratio of just 16% of its income after tax. A useful secondary check can be to evaluate whether AfreecaTV generated enough free cash flow to afford its dividend. Luckily it paid out just 13% of its free 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?

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see AfreecaTV's earnings have been skyrocketing, up 168% per annum for the past five years. AfreecaTV earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, AfreecaTV has lifted its dividend by approximately 16% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

Should investors buy AfreecaTV for the upcoming dividend? We love that AfreecaTV is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Overall we think this is an attractive combination and worthy of further research.

Ever wonder what the future holds for AfreecaTV? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.