Is Seoulin Bioscience Co.,Ltd. (KOSDAQ:038070) A Great Dividend Stock?

Today we'll take a closer look at Seoulin Bioscience Co.,Ltd. (KOSDAQ:038070) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

A 0.7% yield is nothing to get excited about, but investors probably think the long payment history suggests Seoulin BioscienceLtd has some staying power. The company also bought back stock during the year, equivalent to approximately 0.5% of the company's market capitalisation at the time. That said, the recent jump in the share price will make Seoulin BioscienceLtd's dividend yield look smaller, even though the company prospects could be improving. There are a few simple ways to reduce the risks of buying Seoulin BioscienceLtd for its dividend, and we'll go through these below.

Click the interactive chart for our full dividend analysis

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. In the last year, Seoulin BioscienceLtd paid out 18% of its profit as dividends. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.

We also measure dividends paid against a company's levered free cash flow, to see if enough cash was generated to cover the dividend. Seoulin BioscienceLtd paid out 109% of its free cash flow last year, suggesting the dividend is poorly covered by cash flow. Seoulin BioscienceLtd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough free cash flow to cover the dividend. Cash is king, as they say, and were Seoulin BioscienceLtd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

With a strong net cash balance, Seoulin BioscienceLtd investors may not have much to worry about in the near term from a dividend perspective.

Remember, you can always get a snapshot of Seoulin BioscienceLtd's latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. Seoulin BioscienceLtd has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past 10-year period, the first annual payment was ₩48.0 in 2011, compared to ₩96.2 last year. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time.

Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Seoulin BioscienceLtd has grown its earnings per share at 15% per annum over the past five years. Rapid earnings growth and a low payout ratio suggests this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Conclusion

To summarise, shareholders should always check that Seoulin BioscienceLtd's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, the company has a conservative payout ratio, although we'd note that its cashflow in the past year was substantially lower than its reported profit. Next, growing earnings per share and steady dividend payments is a great combination. Overall we think Seoulin BioscienceLtd is an interesting dividend stock, although it could be better.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Seoulin BioscienceLtd that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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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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