Be Sure To Check Out Ncsoft Corporation (KRX:036570) Before It Goes Ex-Dividend

Ncsoft Corporation (KRX:036570) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 24th of April.

Ncsoft's upcoming dividend is ₩5,220 a share, following on from the last 12 months, when the company distributed a total of ₩5,220 per share to shareholders. Based on the last year's worth of payments, Ncsoft has a trailing yield of 0.6% on the current stock price of ₩897000. 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 Ncsoft can afford its dividend, and if the dividend could grow.

View our latest analysis for Ncsoft

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ncsoft is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 16% 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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Ncsoft's earnings per share have risen 19% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Ncsoft has increased its dividend at approximately 26% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

From a dividend perspective, should investors buy or avoid Ncsoft? It's great that Ncsoft is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

Wondering what the future holds for Ncsoft? See what the 31 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.

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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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