Should Income Investors Look At Cheil Worldwide Inc. (KRX:030000) Before Its Ex-Dividend?

Cheil Worldwide Inc. (KRX:030000) stock is about to trade ex-dividend in 3 days. Ex-dividend means that investors that purchase the stock on or after the 29th of December will not receive this dividend, which will be paid on the 17th of April.

Cheil Worldwide's next dividend payment will be ₩820 per share. Last year, in total, the company distributed ₩820 to shareholders. Last year's total dividend payments show that Cheil Worldwide has a trailing yield of 3.9% on the current share price of ₩21250. 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 investigate whether Cheil Worldwide can afford its dividend, and if the dividend could grow.

See our latest analysis for Cheil Worldwide

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. Cheil Worldwide paid out 61% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Cheil Worldwide generated enough free cash flow to afford its dividend. It distributed 37% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Cheil Worldwide'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 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. This is why it's a relief to see Cheil Worldwide earnings per share are up 5.3% per annum over the last five years. Decent historical earnings per share growth suggests Cheil Worldwide has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Cheil Worldwide has increased its dividend at approximately 9.2% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Has Cheil Worldwide got what it takes to maintain its dividend payments? While earnings per share growth has been modest, Cheil Worldwide's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Cheil Worldwide's dividend merits.

Ever wonder what the future holds for Cheil Worldwide? See what the 19 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top 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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