Should You Buy Huons Co., Ltd. (KOSDAQ:243070) For Its Upcoming Dividend?

Readers hoping to buy Huons Co., Ltd. (KOSDAQ:243070) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 29th of December will not receive the dividend, which will be paid on the 17th of April.

Huons's next dividend payment will be ₩600 per share, on the back of last year when the company paid a total of ₩700 to shareholders. Last year's total dividend payments show that Huons has a trailing yield of 1.0% on the current share price of ₩67900. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Huons

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Huons has a low and conservative payout ratio of just 16% of its income after tax. A useful secondary check can be to evaluate whether Huons generated enough free cash flow to afford its dividend. It paid out more than half (71%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Huons'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?

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Huons's earnings per share have been growing at 12% a year for the past five years. Huons is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Huons's dividend payments per share have declined at 1.9% per year on average over the past two years, which is uninspiring.

The Bottom Line

From a dividend perspective, should investors buy or avoid Huons? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Huons looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Huons for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Huons you should know about.

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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