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Is Lotte Chilsung Beverage Co’s (KRX:5300) dividend payment at risk?

Fri 8:33am by Ben Hobson

Dividend cuts are almost always preceded or succeeded by a painful decline in share price - so understanding how to screen out companies whose dividend payments are at risk can help improve portfolio performance.

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 Lotte Chilsung Beverage Co (KRX:5300), which pays a 2,700 rolling dividend, shows that shareholders ought to be seriously concerned about the sustainability of its dividend...


Is Lotte Chilsung Beverage Co (KRX:5300)’s dividend cover below 1.0x?

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 1.5x earnings can become a concern.

  • The rolling dividend cover is based on projected dividends and earnings. Lotte Chilsung Beverage Co’s rolling dividend cover is 0.68.
  • The historic dividend cover is, of course, based on historic dividends and earnings. Lotte Chilsung Beverage Co’s historic dividend cover is -6.37.

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

Does Lotte Chilsung Beverage Co (KRX:5300) have a strong balance sheet?

Another way to look at dividend safety is to focus more directly 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. Lotte Chilsung Beverage Co’s net gearing ratio is 110.6% - 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. Lotte Chilsung Beverage Co’s current ratio is 0.62 - below the 1.0x threshold.

Does Lotte Chilsung Beverage Co have enough cash?

Shareholders could take additional steps to analyse dividend safety by comparing Free Cashflows Per Share (FCF PS) with the Dividend Per Share (DPS). Lotte Chilsung Beverage Co generated -6,422 in FCF PS. This is lower than the dividend payout 2,700 and indicates that the company has not generated enough FCF to cover 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 Lotte Chilsung Beverage Co (KRX:5300), 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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