Here's What We Like About Kwang Dong Pharmaceutical's (KRX:009290) Upcoming Dividend

Readers hoping to buy Kwang Dong Pharmaceutical Co., Ltd. (KRX:009290) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 29th of December in order to receive the dividend, which the company will pay on the 14th of April.

Kwang Dong Pharmaceutical's next dividend payment will be ₩80.00 per share, on the back of last year when the company paid a total of ₩80.00 to shareholders. Last year's total dividend payments show that Kwang Dong Pharmaceutical has a trailing yield of 0.8% on the current share price of ₩10150. 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 Kwang Dong Pharmaceutical can afford its dividend, and if the dividend could grow.

View our latest analysis for Kwang Dong Pharmaceutical

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. Kwang Dong Pharmaceutical has a low and conservative payout ratio of just 5.9% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 12% of its free cash flow as dividends last year, which is conservatively low.

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 how much of its profit Kwang Dong Pharmaceutical paid out over the last 12 months.

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 Kwang Dong Pharmaceutical earnings per share are up 9.4% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Kwang Dong Pharmaceutical has delivered 4.8% dividend growth per year on average over the past 10 years. 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.

The Bottom Line

Is Kwang Dong Pharmaceutical worth buying for its dividend? Earnings per share growth has been growing somewhat, and Kwang Dong Pharmaceutical is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Kwang Dong Pharmaceutical is halfway there. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Kwang Dong Pharmaceutical has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 3 warning signs for Kwang Dong Pharmaceutical (1 is a bit unpleasant!) that you ought to be aware of before buying the shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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