Here's Why We're Wary Of Buying King Core Electronics' (TWSE:6155) For Its Upcoming Dividend

Readers hoping to buy King Core Electronics Inc. (TWSE:6155) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, King Core Electronics investors that purchase the stock on or after the 3rd of July will not receive the dividend, which will be paid on the 23rd of July.

The company's next dividend payment will be NT$0.85 per share, on the back of last year when the company paid a total of NT$0.85 to shareholders. Based on the last year's worth of payments, King Core Electronics has a trailing yield of 2.9% on the current stock price of NT$29.55. If you buy this business for its dividend, you should have an idea of whether King Core Electronics's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for King Core Electronics

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. Last year King Core Electronics paid out 91% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the past year it paid out 168% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Cash is slightly more important than profit from a dividend perspective, but given King Core Electronics's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. King Core Electronics's earnings per share have fallen at approximately 8.7% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. King Core Electronics's dividend payments per share have declined at 5.9% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

The Bottom Line

Has King Core Electronics got what it takes to maintain its dividend payments? It's looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (91%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. It's not that we think King Core Electronics is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in King Core Electronics and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 2 warning signs for King Core Electronics (1 is a bit concerning!) that deserve your attention before investing in the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com