Dividend Investors: Don't Be Too Quick To Buy Samchully Co.,Ltd (KRX:004690) For Its Upcoming Dividend

Readers hoping to buy Samchully Co.,Ltd (KRX:004690) 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 10th of April.

SamchullyLtd's next dividend payment will be ₩3,000 per share, and in the last 12 months, the company paid a total of ₩3,000 per share. Looking at the last 12 months of distributions, SamchullyLtd has a trailing yield of approximately 3.6% on its current stock price of ₩82300. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for SamchullyLtd

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 84% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether SamchullyLtd generated enough free cash flow to afford its dividend. Over the last year it paid out 55% of its free cash flow as dividends, within the usual range for most companies.

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 how much of its profit SamchullyLtd paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that SamchullyLtd's earnings are down 5.0% a year over the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. SamchullyLtd has delivered an average of 4.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. SamchullyLtd is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

Is SamchullyLtd an attractive dividend stock, or better left on the shelf? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that in mind though, if the poor dividend characteristics of SamchullyLtd don't faze you, it's worth being mindful of the risks involved with this business. Be aware that SamchullyLtd is showing 3 warning signs in our investment analysis, and 1 of those is concerning...

If you're in the market for dividend stocks, we recommend checking our list of top 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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