Don't Buy Lotte Shopping Co., Ltd. (KRX:023530) For Its Next Dividend Without Doing These Checks

Readers hoping to buy Lotte Shopping Co., Ltd. (KRX:023530) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 27th of April.

Lotte Shopping's next dividend payment will be ₩3,800 per share. Last year, in total, the company distributed ₩3,800 to shareholders. Based on the last year's worth of payments, Lotte Shopping stock has a trailing yield of around 3.8% on the current share price of ₩100000. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Lotte Shopping

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. Lotte Shopping's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Lotte Shopping didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Luckily it paid out just 23% of its free cash flow last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Lotte Shopping was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Lotte Shopping has delivered an average of 12% per year annual increase in its dividend, based on the past 10 years of dividend payments.

We update our analysis on Lotte Shopping every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Should investors buy Lotte Shopping for the upcoming dividend? It's hard to get used to Lotte Shopping paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Lotte Shopping has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Lotte Shopping despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Case in point: We've spotted 1 warning sign for Lotte Shopping you should be aware of.

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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