Is Chong Kun Dang Pharmaceutical Corp. (KRX:185750) An Attractive Dividend Stock?

Today we'll take a closer look at Chong Kun Dang Pharmaceutical Corp. (KRX:185750) 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. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

Some readers mightn't know much about Chong Kun Dang Pharmaceutical's 0.4% dividend, as it has only been paying distributions for a year or so. That said, the recent jump in the share price will make Chong Kun Dang Pharmaceutical's dividend yield look smaller, even though the company prospects could be improving. Some simple research can reduce the risk of buying Chong Kun Dang Pharmaceutical for its dividend - read on to learn more.

Click the interactive chart for our full dividend analysis

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 10% of Chong Kun Dang Pharmaceutical's profits were paid out as dividends in the last 12 months. We'd say its dividends are thoroughly covered by earnings.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Chong Kun Dang Pharmaceutical's cash payout ratio last year was 15%, which is quite low and suggests that the dividend was thoroughly covered by cash flow. It's positive to see that Chong Kun Dang Pharmaceutical'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.

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

We update our data on Chong Kun Dang Pharmaceutical every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. This company has been paying a dividend for less than 2 years, which we think is too soon to consider it a reliable dividend stock. Dividends per share have grown at approximately 5.0% per year over this time.

Chong Kun Dang Pharmaceutical has been growing its dividend at a decent rate, and the payments have been stable despite the short payment history. This is a positive start.

Dividend Growth Potential

Examining whether the dividend is affordable and stable is important. However, it's also important to assess if earnings per share (EPS) are growing. Growing EPS can help maintain or increase the purchasing power of the dividend over the long run. It's good to see Chong Kun Dang Pharmaceutical has been growing its earnings per share at 18% a year over the past five years. Earnings per share are growing at a solid clip, and the payout ratio is low. We think this is an ideal combination in a dividend stock.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. It's great to see that Chong Kun Dang Pharmaceutical is paying out a low percentage of its earnings and cash flow. Next, earnings growth has been good, but unfortunately the company has not been paying dividends as long as we'd like. All things considered, Chong Kun Dang Pharmaceutical looks like a strong prospect. At the right valuation, it could be something special.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Chong Kun Dang Pharmaceutical (of which 1 is concerning!) you should know about.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 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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