Why You Might Be Interested In eMnet Inc. (KOSDAQ:123570) For Its Upcoming Dividend

Readers hoping to buy eMnet Inc. (KOSDAQ:123570) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase eMnet's shares before the 27th of December in order to be eligible for the dividend, which will be paid on the 18th of April.

The company's upcoming dividend is ₩50.00 a share, following on from the last 12 months, when the company distributed a total of ₩50.00 per share to shareholders. Looking at the last 12 months of distributions, eMnet has a trailing yield of approximately 2.2% on its current stock price of ₩2325.00. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for eMnet

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. eMnet has a low and conservative payout ratio of just 23% of its income after tax. A useful secondary check can be to evaluate whether eMnet generated enough free cash flow to afford its dividend. Luckily it paid out just 14% of its free cash flow last year.

It's positive to see that eMnet's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at eMnet, with earnings per share up 2.6% on average over the last five years. eMnet is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last five years, eMnet has lifted its dividend by approximately 20% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid eMnet? Earnings per share growth has been growing somewhat, and eMnet is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and eMnet is halfway there. Overall we think this is an attractive combination and worthy of further research.

So while eMnet looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To that end, you should learn about the 3 warning signs we've spotted with eMnet (including 1 which is a bit concerning).

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.