The board of HLS Therapeutics Inc. (TSE:HLS) has announced that it will pay a dividend on the 15th of September, with investors receiving CA$0.05 per share. This means the annual payment will be 1.5% of the current stock price, which is lower than the industry average.
HLS Therapeutics Might Find It Hard To Continue The Dividend
Even a low dividend yield can be attractive if it is sustained for years on end. HLS Therapeutics is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Assuming the trend of the last few years continues, EPS will grow by 1.1% over the next 12 months. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. However, the positive cash flow ratio gives us some comfort about the sustainability of the dividend.
HLS Therapeutics Doesn't Have A Long Payment History
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. Since 2018, the dividend has gone from US$0.15 to US$0.15. Dividend payments have been growing, but very slowly over the period. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
Dividend Growth May Be Hard To Achieve
The company's investors will be pleased to have been receiving dividend income for some time. HLS Therapeutics hasn't seen much change in its earnings per share over the last five years. HLS Therapeutics isn't actually turning a profit, which makes it much harder for us to see how they can grow dividends.
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. 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 would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for HLS Therapeutics that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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