Medical Facilities' (TSE:DR) Upcoming Dividend Will Be Larger Than Last Year's

Medical Facilities Corporation's (TSE:DR) dividend will be increasing to CA$0.081 on 1st of January. The announced payment will take the dividend yield to 3.3%, which is in line with the average for the industry.

View our latest analysis for Medical Facilities

Medical Facilities' Dividend Is Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, the company was paying out 326% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 19%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 39%, which is in a comfortable range for us.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the first annual payment was US$0.36, compared to the most recent full-year payment of US$0.25. This works out to be a decline of approximately 3.7% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 2.8% per annum over the last five years, which admittedly is a bit slow. With anaemic earnings growth, it's not confidence inspiring to see Medical Facilities paying out more than double what it is earning. Meaning that on balance, the dividend is more likely to fall in the future than to grow.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Medical Facilities will make a great income stock. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Medical Facilities is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 3 warning signs for Medical Facilities that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.