Do These 3 Checks Before Buying Hanil Cement Co., Ltd. (KRX:300720) For Its Upcoming Dividend
Hanil Cement Co., Ltd. (KRX:300720) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. In other words, investors can purchase Hanil Cement's shares before the 29th of December in order to be eligible for the dividend, which will be paid on the 8th of April.
The company's next dividend payment will be ₩1000.00 per share. Last year, in total, the company distributed ₩1,000 to shareholders. Looking at the last 12 months of distributions, Hanil Cement has a trailing yield of approximately 5.2% on its current stock price of ₩19300.00. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Hanil Cement has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Its dividend payout ratio is 89% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Hanil Cement generated enough free cash flow to afford its dividend. Over the last year, it paid out dividends equivalent to 330% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.
Hanil Cement paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Hanil Cement to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
See our latest analysis for Hanil Cement
Click here to see how much of its profit Hanil Cement paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Hanil Cement's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past five years, Hanil Cement has increased its dividend at approximately 14% a year on average.
To Sum It Up
Has Hanil Cement got what it takes to maintain its dividend payments? In addition to earnings being flat, Hanil Cement is paying out a reasonable percentage of its earnings as profits. However, the dividend was not well covered by free cash flow. Bottom line: Hanil Cement has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Although, if you're still interested in Hanil Cement and want to know more, you'll find it very useful to know what risks this stock faces. In terms of investment risks, we've identified 2 warning signs with Hanil Cement and understanding them should be part of your investment process.
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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.