Zooming in on KOSDAQ:049950's 0.5% Dividend Yield

Is meerecompany Incorporated (KOSDAQ:049950) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

Investors might not know much about meerecompany's dividend prospects, even though it has been paying dividends for the last eight years and offers a 0.5% yield. A 0.5% yield is not inspiring, but the longer payment history has some appeal. Some simple analysis can reduce the risk of holding meerecompany for its dividend, and we'll focus on the most important aspects below.

Explore this interactive chart for our latest analysis on meerecompany!

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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Although it reported a loss over the past 12 months, meerecompany 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.

Unfortunately, while meerecompany pays a dividend, it also reported negative free cash flow last year. While there may be a good reason for this, it's not ideal from a dividend perspective.

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

Consider getting our latest analysis on meerecompany'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. The first recorded dividend for meerecompany, in the last decade, was eight years ago. Although it has been paying a dividend for several years now, the dividend has been cut at least once, and we're cautious about the consistency of its dividend across a full economic cycle. During the past eight-year period, the first annual payment was ₩136 in 2013, compared to ₩220 last year. This works out to be a compound annual growth rate (CAGR) of approximately 6.2% a year over that time. The dividends haven't grown at precisely 6.2% every year, but this is a useful way to average out the historical rate of 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. meerecompany 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 evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. meerecompany's EPS have fallen by approximately 15% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective, as even conservative payout ratios can come under pressure if earnings fall far enough.

Conclusion

To summarise, shareholders should always check that meerecompany's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. 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. Second, earnings per share have been in decline, and its dividend has been cut at least once in the past. There are a few too many issues for us to get comfortable with meerecompany 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. Taking the debate a bit further, we've identified 1 warning sign for meerecompany that investors need to be conscious of moving forward.

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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