Do These 3 Checks Before Buying HDC I-Controls Co., Ltd. (KRX:039570) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see HDC I-Controls Co., Ltd. (KRX:039570) is about to trade ex-dividend in the next 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 24th of April.

HDC I-Controls's next dividend payment will be ₩350 per share. Last year, in total, the company distributed ₩350 to shareholders. Based on the last year's worth of payments, HDC I-Controls has a trailing yield of 3.4% on the current stock price of ₩10200. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for HDC I-Controls

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. HDC I-Controls paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If HDC I-Controls didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out an unsustainably high 266% of its free cash flow as dividends over the past 12 months, which is worrying. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.

HDC I-Controls does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.

Click here to see how much of its profit HDC I-Controls paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. HDC I-Controls was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last five years, HDC I-Controls has lifted its dividend by approximately 23% a year on average.

Get our latest analysis on HDC I-Controls's balance sheet health here.

The Bottom Line

Has HDC I-Controls got what it takes to maintain its dividend payments? It's hard to get used to HDC I-Controls paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of HDC I-Controls don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 2 warning signs for HDC I-Controls (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.

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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