Why You Might Be Interested In Avaco Co., Ltd. (KOSDAQ:083930) For Its Upcoming Dividend

Avaco Co., Ltd. (KOSDAQ:083930) stock is about to trade ex-dividend in three days. Investors can purchase shares before the 29th of December in order to be eligible for this dividend, which will be paid on the 7th of April.

Avaco's next dividend payment will be ₩300 per share. Last year, in total, the company distributed ₩300 to shareholders. Last year's total dividend payments show that Avaco has a trailing yield of 2.9% on the current share price of ₩10250. If you buy this business for its dividend, you should have an idea of whether Avaco's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Avaco

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Avaco paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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. Luckily it paid out just 14% of its free cash flow last year.

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 Avaco paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Avaco has grown its earnings rapidly, up 25% a year for the past five years. Avaco earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Avaco has delivered 13% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Avaco worth buying for its dividend? Avaco has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.

Keen to explore more data on Avaco's financial performance? Check out our visualisation of its historical revenue and earnings growth.

If you're in the market for dividend stocks, we recommend checking our list of top 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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