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Could Covid force Ildong Holdings Co (KRX:230) to scrap its dividend payment?

22nd May by Ben Hobson

Knowing whether a dividend is likely to be cut is a useful skill for investors – not only do such cuts affect the income a portfolio can produce, but it can also affect the share price, as markets do not react well when such cuts are announced. This means anticipating dividend cuts ahead of time can reduce investment risk and help improve portfolio performance.

Rather than guessing what may happen in the current uncertainty generated by the world's response to Covid, there are lots of financial indicators that can help us evaluate the sustainability of a company’s dividend. Taking the best of these and applying them to Ildong Holdings Co (KRX:230raises questions about whether it can afford its dividend payments in the short to medium term.


Ildong Holdings Co's (KRX:230) dividend cover is below

Dividend cover is seen by many as the essential dividend health metric and is calculated by dividing earnings per share divided by dividend per share (EPS/DPS). The usual rule of thumb is that dividend cover of less than 1x earnings can become a concern.

  • The rolling dividend cover is based on projected dividends and earnings. Ildong Holdings Co’s rolling dividend cover is 0.52.
  • The historic dividend cover is, of course, based on historic dividends and earnings. Ildong Holdings Cos’s historic dividend cover is -20.7.

Both of these figures are below the 1.0x safety threshold for Ildong Holdings Co that we have set. This suggests that the dividend could be at risk.

Ildong Holdings Co's (KRX:230) heavily geared balance sheet

One way to analyse dividend safety is to focus on a company’s balance sheet strength. A highly leveraged company that struggles to meet its short-term liabilities is more likely to cut its dividend than a well-financed one.

A safe level of net gearing (net debt to equity) on the balance sheet is generally considered to be 50 percent or less. Ildong Holdings Co’s net gearing ratio is 92.7% - above the 50% threshold.

The current ratio (current assets / current liabilities ) gauges a company’s capacity to service short term debts. A current ratio of less than one can be cause for concern. Ildong Holdings Co's current ratio is 0.81 - below the 1.0x threshold.

Is the company struggling to generate cash?

Shareholders could take additional steps to analyse dividend safety by comparing Free Cashflows Per Share (FCF PS) with the Dividend Per Share (DPS). Ildong Holdings Co generated -40.6 in FCF PS. This is lower than the dividend per share of 95.2 and indicates that the company has not generated enough FCF to sustain dividends over the past twelve months.

Income investing: what you need to know

For many investors, dividends are a vital part of their long-term strategy. That's why we have created a variety of income-focused stock screens, such as the Best Dividends Screen, to identify promising candidates for income portfolios. Take a look and see if any of the qualifying stocks might be worthy of further research.

As for Ildong Holdings Co (KRX:230), you can find a wealth of financial data on the group's StockReport, including information on the group's past and forecast dividend payments. If you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.

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