Boai NKY Medical Holdings (SZSE:300109) Is Paying Out A Larger Dividend Than Last Year

Boai NKY Medical Holdings Ltd. (SZSE:300109) will increase its dividend from last year's comparable payment on the 7th of June to CN¥1.00. This makes the dividend yield 4.8%, which is above the industry average.

View our latest analysis for Boai NKY Medical Holdings

Boai NKY Medical Holdings' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 186% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share could rise by 29.9% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 62%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was CN¥0.046, compared to the most recent full-year payment of CN¥1.00. This means that it has been growing its distributions at 36% per annum over that time. Boai NKY Medical Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that Boai NKY Medical Holdings has been growing its earnings per share at 30% a year over the past five years. Boai NKY Medical Holdings is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Boai NKY Medical Holdings' payments are rock solid. While Boai NKY Medical Holdings is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Boai NKY Medical Holdings that investors need to be conscious of moving forward. Is Boai NKY Medical Holdings not quite the opportunity you were looking for? Why not check out our selection of top 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.