Investors In Bukwang Pharmaceutical Co., Ltd. (KRX:003000) Should Consider This, First

Today we'll take a closer look at Bukwang Pharmaceutical Co., Ltd. (KRX:003000) 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. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.

Investors might not know much about Bukwang Pharmaceutical's dividend prospects, even though it has been paying dividends for the last five years and offers a 0.7% yield. A 0.7% yield is not inspiring, but the longer payment history has some appeal. The company also bought back stock equivalent to around 1.6% of market capitalisation this year. Some simple research can reduce the risk of buying Bukwang Pharmaceutical for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Bukwang Pharmaceutical!

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. While Bukwang Pharmaceutical pays a dividend, it reported a loss over the last year. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Last year, Bukwang Pharmaceutical paid a dividend while reporting negative free cash flow. While there may be an explanation, we think this behaviour is generally not sustainable.

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

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

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Bukwang Pharmaceutical has been paying a dividend for the past five years. During the past five-year period, the first annual payment was ₩353 in 2016, compared to ₩173 last year. Dividend payments have fallen sharply, down 51% over that time.

We struggle to make a case for buying Bukwang Pharmaceutical for its dividend, given that payments have shrunk over the past five years.

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. Over the past five years, it looks as though Bukwang Pharmaceutical's EPS have declined at around 3.5% a year. If earnings continue to decline, the dividend may come under pressure. Every investor should make an assessment of whether the company is taking steps to stabilise the situation.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. It's a concern to see that the company paid a dividend despite reporting a loss, and the dividend was also not well covered by free cash flow. Earnings per share are down, and to our mind Bukwang Pharmaceutical has not been paying a dividend long enough to demonstrate its resilience across economic cycles. In this analysis, Bukwang Pharmaceutical doesn't shape up too well as a dividend stock. We'd find it hard to look past the flaws, and would not be inclined to think of it as a reliable dividend-payer.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Bukwang Pharmaceutical has 2 warning signs (and 1 which is significant) we think you should know about.

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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