Do These 3 Checks Before Buying Korea Gas Corporation (KRX:036460) For Its Upcoming Dividend

Korea Gas Corporation (KRX:036460) is about to trade ex-dividend in the next three days. This means that investors who purchase shares on or after the 29th of December will not receive the dividend, which will be paid on the 14th of April.

Korea Gas's upcoming dividend is ₩380 a share, following on from the last 12 months, when the company distributed a total of ₩380 per share to shareholders. Calculating the last year's worth of payments shows that Korea Gas has a trailing yield of 1.3% on the current share price of ₩30300. 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.

See our latest analysis for Korea Gas

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Korea Gas's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. 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 Korea Gas didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Luckily it paid out just 3.6% of its free cash flow last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Korea Gas 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. Korea Gas has seen its dividend decline 6.8% per annum on average over the past 10 years, which is not great to see.

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

Final Takeaway

Is Korea Gas an attractive dividend stock, or better left on the shelf? 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. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in Korea Gas and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 1 warning sign for Korea Gas and you should be aware of this before buying any shares.

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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