Is It Smart To Buy RingNet Co., Ltd. (KOSDAQ:042500) Before It Goes Ex-Dividend?

Readers hoping to buy RingNet Co., Ltd. (KOSDAQ:042500) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase RingNet's shares before the 27th of December in order to be eligible for the dividend, which will be paid on the 30th of April.

The company's next dividend payment will be ₩240.00 per share, on the back of last year when the company paid a total of ₩76.92 to shareholders. Last year's total dividend payments show that RingNet has a trailing yield of 1.5% on the current share price of ₩4975.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for RingNet

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. RingNet is paying out just 8.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 24% 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 how much of its profit RingNet paid out over the last 12 months.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see RingNet's earnings have been skyrocketing, up 37% per annum for the past five years. RingNet 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.

Given that RingNet has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Has RingNet got what it takes to maintain its dividend payments? We love that RingNet is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in RingNet for the dividends alone, you should always be mindful of the risks involved. We've identified 2 warning signs with RingNet (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.