Don't Race Out To Buy Hyundai Ezwel Co.,Ltd. (KOSDAQ:090850) Just Because It's Going 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 Hyundai Ezwel Co.,Ltd. (KOSDAQ:090850) is about to go ex-dividend in just 2 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Hyundai EzwelLtd's shares on or after the 27th of December will not receive the dividend, which will be paid on the 21st of April.

The company's next dividend payment will be ₩90.00 per share, and in the last 12 months, the company paid a total of ₩90.00 per share. Last year's total dividend payments show that Hyundai EzwelLtd has a trailing yield of 1.7% on the current share price of ₩5260.00. 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 Hyundai EzwelLtd

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Hyundai EzwelLtd distributed an unsustainably high 153% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 18% of its free cash flow as dividends last year, which is conservatively low.

It's good to see that while Hyundai EzwelLtd's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit Hyundai EzwelLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Hyundai EzwelLtd's 11% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hyundai EzwelLtd has delivered 12% dividend growth per year on average over the past eight years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Hyundai EzwelLtd is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Is Hyundai EzwelLtd an attractive dividend stock, or better left on the shelf? It's not a great combination to see a company with earnings in decline and paying out 153% of its profits, which could imply the dividend may be at risk of being cut in the future. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Hyundai EzwelLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 5 warning signs with Hyundai EzwelLtd (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

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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.