Don't Race Out To Buy Perfect Medical Industry Co., Ltd. (GTSM:6543) Just Because It's Going Ex-Dividend

It looks like Perfect Medical Industry Co., Ltd. (GTSM:6543) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 14th of July, you won't be eligible to receive this dividend, when it is paid on the 12th of August.

Perfect Medical Industry's next dividend payment will be NT$0.70 per share, and in the last 12 months, the company paid a total of NT$0.70 per share. Based on the last year's worth of payments, Perfect Medical Industry has a trailing yield of 2.3% on the current stock price of NT$30.3. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Perfect Medical Industry has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Perfect Medical Industry

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Perfect Medical Industry paid out more than half (74%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (59%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Perfect Medical Industry's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Perfect Medical Industry paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Perfect Medical Industry's earnings are effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Perfect Medical Industry also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

This is Perfect Medical Industry's first year of paying a dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.

To Sum It Up

From a dividend perspective, should investors buy or avoid Perfect Medical Industry? While earnings per share are flat, at least Perfect Medical Industry has not committed itself to an unsustainable dividend, with its earnings and cashflow payout ratios within reasonable bounds. Bottom line: Perfect Medical Industry has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

So if you're still interested in Perfect Medical Industry despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Every company has risks, and we've spotted 4 warning signs for Perfect Medical Industry you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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