Is It Smart To Buy Silicon Works Co., Ltd. (KOSDAQ:108320) Before It Goes Ex-Dividend?

Silicon Works Co., Ltd. (KOSDAQ:108320) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 29th of December in order to be eligible for this dividend, which will be paid on the 24th of April.

Silicon Works's next dividend payment will be ₩830 per share. Last year, in total, the company distributed ₩830 to shareholders. Based on the last year's worth of payments, Silicon Works has a trailing yield of 1.5% on the current stock price of ₩54500. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Silicon Works

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Silicon Works has a low and conservative payout ratio of just 18% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 17% 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 the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Silicon Works's earnings per share have risen 18% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Silicon Works has lifted its dividend by approximately 3.3% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Silicon Works is keeping back more of its profits to grow the business.

The Bottom Line

Has Silicon Works got what it takes to maintain its dividend payments? It's great that Silicon Works is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Silicon Works looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Silicon Works for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 1 warning sign with Silicon Works and understanding them should be part of your investment process.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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