Is It Smart To Buy DB HiTek CO., LTD. (KRX:000990) Before It Goes Ex-Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that DB HiTek CO., LTD. (KRX:000990) is about to go ex-dividend in just 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase DB HiTek's shares on or after the 27th of December, you won't be eligible to receive the dividend, when it is paid on the 28th of April.

The company's next dividend payment will be ₩580.00 per share, on the back of last year when the company paid a total of ₩580 to shareholders. Looking at the last 12 months of distributions, DB HiTek has a trailing yield of approximately 1.7% on its current stock price of ₩33200.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for DB HiTek

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. DB HiTek is paying out just 10% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 21% of its 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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see DB HiTek has grown its earnings rapidly, up 23% a year for the past five years. DB HiTek looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last five years, DB HiTek has lifted its dividend by approximately 18% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is DB HiTek an attractive dividend stock, or better left on the shelf? DB HiTek has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past five years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

On that note, you'll want to research what risks DB HiTek is facing. Our analysis shows 1 warning sign for DB HiTek and you should be aware of this before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.