It Might Not Be A Great Idea To Buy KAON Group Co., Ltd. (KOSDAQ:078890) For Its Next Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see KAON Group Co., Ltd. (KOSDAQ:078890) is about to trade ex-dividend in the next 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 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. Accordingly, KAON Group investors that purchase the stock on or after the 27th of December will not receive the dividend, which will be paid on the 17th of April.

The company's next dividend payment will be ₩29.41176 per share. Last year, in total, the company distributed ₩30.00 to shareholders. Based on the last year's worth of payments, KAON Group stock has a trailing yield of around 1.0% on the current share price of ₩3050.00. If you buy this business for its dividend, you should have an idea of whether KAON Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for KAON Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. KAON Group lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If KAON Group 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 2.2% of its free cash flow as dividends last year, which is conservatively low.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. KAON Group 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.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. KAON Group has seen its dividend decline 20% per annum on average over the past five years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Get our latest analysis on KAON Group's balance sheet health here.

The Bottom Line

From a dividend perspective, should investors buy or avoid KAON Group? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think KAON Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that in mind though, if the poor dividend characteristics of KAON Group don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 3 warning signs we've spotted with KAON Group (including 2 which don't sit too well with us).

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.