We Wouldn't Be Too Quick To Buy ABCO Electronics Co., Ltd. (KOSDAQ:036010) 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 ABCO Electronics Co., Ltd. (KOSDAQ:036010) is about to go ex-dividend in just three days. Ex-dividend means that investors that purchase the stock on or after the 29th of December will not receive this dividend, which will be paid on the 14th of April.

ABCO Electronics's next dividend payment will be ₩70.00 per share, on the back of last year when the company paid a total of ₩70.00 to shareholders. Last year's total dividend payments show that ABCO Electronics has a trailing yield of 0.9% on the current share price of ₩7990. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether ABCO Electronics can afford its dividend, and if the dividend could grow.

Check out our latest analysis for ABCO Electronics

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. ABCO Electronics 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. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.

Click here to see how much of its profit ABCO Electronics 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. ABCO Electronics reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Unfortunately ABCO Electronics has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

We update our analysis on ABCO Electronics every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is ABCO Electronics an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think ABCO Electronics is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering ABCO Electronics as an investment, you'll find it beneficial to know what risks this stock is facing. To help with this, we've discovered 3 warning signs for ABCO Electronics that you should be aware of before investing in their shares.

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.

When trading ABCO Electronics or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.