Dividend Investors: Don't Be Too Quick To Buy Sebang Co., Ltd (KRX:004360) 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 Sebang Co., Ltd (KRX:004360) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 29th of December in order to be eligible for this dividend, which will be paid on the 27th of April.

Sebang's next dividend payment will be ₩175 per share, on the back of last year when the company paid a total of ₩175 to shareholders. Based on the last year's worth of payments, Sebang stock has a trailing yield of around 1.6% on the current share price of ₩11100. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Sebang

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Sebang 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. 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. It paid out 1.4% of its free cash flow as dividends last year, which is conservatively low.

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

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Sebang 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.

Given that Sebang has only been paying a dividend for a year, there's not much of a past history to draw insight from.

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

Final Takeaway

Should investors buy Sebang for the upcoming dividend? 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 the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Sebang as an investment, you'll find it beneficial to know what risks this stock is facing. Every company has risks, and we've spotted 2 warning signs for Sebang (of which 1 doesn't sit too well with us!) you should know about.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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