Why You Might Be Interested In CareTech Holdings PLC (LON:CTH) For Its Upcoming Dividend

CareTech Holdings PLC (LON:CTH) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 4th of March, you won't be eligible to receive this dividend, when it is paid on the 5th of May.

CareTech Holdings's next dividend payment will be UK£0.087 per share, and in the last 12 months, the company paid a total of UK£0.13 per share. Last year's total dividend payments show that CareTech Holdings has a trailing yield of 2.5% on the current share price of £5.1. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether CareTech Holdings can afford its dividend, and if the dividend could grow.

View our latest analysis for CareTech Holdings

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. CareTech Holdings paid out more than half (56%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 23% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see CareTech Holdings's earnings per share have risen 11% per annum over the last five years. CareTech Holdings is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CareTech Holdings has delivered an average of 8.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Should investors buy CareTech Holdings for the upcoming dividend? CareTech Holdings's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while CareTech Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for CareTech Holdings and you should be aware of these before buying any shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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