Don't Race Out To Buy SK Telecom Co., Ltd. (KRX:017670) Just Because It's Going Ex-Dividend
It looks like SK Telecom Co., Ltd. (KRX:017670) is about to go ex-dividend in the next four days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Therefore, if you purchase SK Telecom's shares on or after the 28th of August, you won't be eligible to receive the dividend, when it is paid on the 17th of September.
The company's next dividend payment will be ₩830.00 per share. Last year, in total, the company distributed ₩3,320 to shareholders. Based on the last year's worth of payments, SK Telecom has a trailing yield of 3.2% on the current stock price of ₩102200.00. 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 SK Telecom has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, SK Telecom paid out 91% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether SK Telecom generated enough free cash flow to afford its dividend. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.
It's good to see that while SK Telecom's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.
View our latest analysis for SK Telecom
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see SK Telecom earnings per share are up 2.3% per annum over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. SK Telecom's dividend payments are broadly unchanged compared to where they were 10 years ago.
The Bottom Line
Has SK Telecom got what it takes to maintain its dividend payments? While earnings per share have been growing slowly, SK Telecom is paying out an uncomfortably high percentage of its earnings. However it did pay out a lower percentage of its cashflow. 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 SK Telecom and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 2 warning signs for SK Telecom you should be aware of.
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.