Income Investors Should Know That K.S. Terminals Inc. (TWSE:3003) Goes Ex-Dividend Soon

K.S. Terminals Inc. (TWSE:3003) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, K.S. Terminals investors that purchase the stock on or after the 2nd of April will not receive the dividend, which will be paid on the 26th of April.

The company's upcoming dividend is NT$1.50 a share, following on from the last 12 months, when the company distributed a total of NT$1.50 per share to shareholders. Based on the last year's worth of payments, K.S. Terminals stock has a trailing yield of around 2.1% on the current share price of NT$69.90. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for K.S. Terminals

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. K.S. Terminals paid out a comfortable 43% of its profit last year. A useful secondary check can be to evaluate whether K.S. Terminals generated enough free cash flow to afford its dividend. Over the last year it paid out 65% 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 K.S. Terminals paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see K.S. Terminals earnings per share are up 2.6% per annum over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, K.S. Terminals has lifted its dividend by approximately 7.9% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Has K.S. Terminals got what it takes to maintain its dividend payments? Earnings per share have been growing at a steady rate, and K.S. Terminals paid out less than half its profits and more than half its free cash flow as dividends over the last year. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

So while K.S. Terminals looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for K.S. Terminals you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.