Is It Smart To Buy OE Solutions Co., Ltd. (KOSDAQ:138080) Before It Goes Ex-Dividend?

Readers hoping to buy OE Solutions Co., Ltd. (KOSDAQ:138080) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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.

OE Solutions's upcoming dividend is ₩400 a share, following on from the last 12 months, when the company distributed a total of ₩400 per share to shareholders. Calculating the last year's worth of payments shows that OE Solutions has a trailing yield of 0.7% on the current share price of ₩53900. If you buy this business for its dividend, you should have an idea of whether OE Solutions's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for OE Solutions

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. OE Solutions is paying out just 23% 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. Luckily it paid out just 20% of its free 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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at OE Solutions, with earnings per share up 2.3% on average over the last five years. OE Solutions is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, three years ago, OE Solutions has lifted its dividend by approximately 59% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is OE Solutions an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and OE Solutions is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and OE Solutions is halfway there. OE Solutions looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while OE Solutions has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with OE Solutions and understanding them should be part of your investment process.

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.

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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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