Why It Might Not Make Sense To Buy Korea Airport Service Co.,Ltd. (KRX:005430) For Its Upcoming Dividend

Readers hoping to buy Korea Airport Service Co.,Ltd. (KRX:005430) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 29th of December in order to receive the dividend, which the company will pay on the 23rd of April.

Korea Airport ServiceLtd's next dividend payment will be ₩1,000 per share, and in the last 12 months, the company paid a total of ₩1,000 per share. Looking at the last 12 months of distributions, Korea Airport ServiceLtd has a trailing yield of approximately 2.7% on its current stock price of ₩37450. 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 Korea Airport ServiceLtd can afford its dividend, and if the dividend could grow.

See our latest analysis for Korea Airport ServiceLtd

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. Korea Airport ServiceLtd reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. 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. Over the last year it paid out 55% of its free cash flow as dividends, within the usual range for most companies.

Click here to see how much of its profit Korea Airport ServiceLtd 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. Korea Airport ServiceLtd 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Korea Airport ServiceLtd has lifted its dividend by approximately 7.2% a year on average.

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

Final Takeaway

Should investors buy Korea Airport ServiceLtd for the upcoming dividend? It's hard to get used to Korea Airport ServiceLtd paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Korea Airport ServiceLtd despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Korea Airport ServiceLtd is showing 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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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