Chengdu Bright Eye Hospital's (SZSE:301239) Upcoming Dividend Will Be Larger Than Last Year's

Chengdu Bright Eye Hospital Co., Ltd. (SZSE:301239) will increase its dividend from last year's comparable payment on the 22nd of July to CN¥0.40. Even though the dividend went up, the yield is still quite low at only 1.1%.

View our latest analysis for Chengdu Bright Eye Hospital

Chengdu Bright Eye Hospital's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Chengdu Bright Eye Hospital's dividend was only 49% of earnings, however it was paying out 1,089% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 40.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 35% by next year, which is in a pretty sustainable range.

Chengdu Bright Eye Hospital Doesn't Have A Long Payment History

It's not possible for us to make a backward looking judgement just based on a short payment history. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Chengdu Bright Eye Hospital has impressed us by growing EPS at 21% per year over the past five years. Chengdu Bright Eye Hospital is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On Chengdu Bright Eye Hospital's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

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. Taking the debate a bit further, we've identified 2 warning signs for Chengdu Bright Eye Hospital 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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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.

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