Perfect Medical Health Management (HKG:1830) Is Paying Out Less In Dividends Than Last Year

Perfect Medical Health Management Limited (HKG:1830) is reducing its dividend to HK$0.25 on the 15th of October. The dividend yield of 5.5% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Perfect Medical Health Management

Perfect Medical Health Management Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 103% of what it was earning and 87% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Earnings per share could rise by 16.1% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 165%, which is a bit high and could start applying pressure to the balance sheet.

Perfect Medical Health Management's Dividend Has Lacked Consistency

Looking back, Perfect Medical Health Management's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from HK$0.025 in 2012 to the most recent annual payment of HK$0.37. This implies that the company grew its distributions at a yearly rate of about 35% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see Perfect Medical Health Management has been growing its earnings per share at 16% a year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

Perfect Medical Health Management's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Perfect Medical Health Management that investors should take into consideration. We have also put together a list of global stocks with a solid dividend.

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