Could YES24 Co.,Ltd (KOSDAQ:053280) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
While YES24Ltd's 1.1% dividend yield is not the highest, we think its lengthy payment history is quite interesting. That said, the recent jump in the share price will make YES24Ltd's dividend yield look smaller, even though the company prospects could be improving. Some simple analysis can reduce the risk of holding YES24Ltd for its dividend, and we'll focus on the most important aspects below.
Click the interactive chart for our full dividend analysis
Payout ratios
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. 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. Although it reported a loss over the past 12 months, YES24Ltd currently pays a dividend. When a company is loss-making, we next need to check to see if its cash flows can support the dividend.
YES24Ltd paid out 474% of its free cash flow last year, suggesting the dividend is poorly covered by cash flow. Paying out more than 100% of your free cash flow in dividends is generally not a long-term, sustainable state of affairs, so we think shareholders should watch this metric closely.
Consider getting our latest analysis on YES24Ltd's financial position 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. YES24Ltd 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 cut on at least one occasion historically. During the past 10-year period, the first annual payment was ₩100 in 2010, compared to ₩200 last year. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. YES24Ltd's dividend payments have fluctuated, so it hasn't grown 7.2% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.
It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. YES24Ltd might have put its house in order since then, but we remain cautious.
Dividend Growth Potential
With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? Over the past five years, it looks as though YES24Ltd's EPS have declined at around 64% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and YES24Ltd's earnings per share, which support the dividend, have been anything but stable.
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. YES24Ltd's dividend is not well covered by free cash flow, plus it paid a dividend while being unprofitable. Earnings per share are down, and YES24Ltd's dividend has been cut at least once in the past, which is disappointing. There are a few too many issues for us to get comfortable with YES24Ltd from a dividend perspective. Businesses can change, but we would struggle to identify why an investor should rely on this stock for their income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come accross 4 warning signs for YES24Ltd you should be aware of, and 1 of them is a bit unpleasant.
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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About KOSDAQ:A053280
Moderate with adequate balance sheet.
