What To Know Before Buying Samwha Electric Co.,Ltd. (KRX:009470) For Its Dividend

Could Samwha Electric Co.,Ltd. (KRX:009470) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

A 0.4% yield is nothing to get excited about, but investors probably think the long payment history suggests Samwha ElectricLtd has some staying power. Some simple research can reduce the risk of buying Samwha ElectricLtd for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Samwha ElectricLtd!

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Looking at the data, we can see that 58% of Samwha ElectricLtd's profits were paid out as dividends in the last 12 months. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Samwha ElectricLtd's cash payout ratio last year was 10%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout. It's positive to see that Samwha ElectricLtd's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

With a strong net cash balance, Samwha ElectricLtd investors may not have much to worry about in the near term from a dividend perspective.

We update our data on Samwha ElectricLtd every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Samwha ElectricLtd has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. During this period the dividend has been stable, which could imply the business could have relatively consistent earnings power. During the past 10-year period, the first annual payment was ₩30.0 in 2011, compared to ₩100 last year. Dividends per share have grown at approximately 13% per year over this time.

It's rare to find a company that has grown its dividends rapidly over 10 years and not had any notable cuts, but Samwha ElectricLtd has done it, which we really like.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Samwha ElectricLtd has grown its earnings per share at 25% per annum over the past five years. With recent, rapid earnings per share growth and a payout ratio of 58%, this business looks like an interesting prospect if earnings are reinvested effectively.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. First, we think Samwha ElectricLtd has an acceptable payout ratio and its dividend is well covered by cashflow. Next, growing earnings per share and steady dividend payments is a great combination. All things considered, Samwha ElectricLtd looks like a strong prospect. At the right valuation, it could be something special.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Samwha ElectricLtd that investors should know about before committing capital to this stock.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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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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