Perfect Medical Health Management's (HKG:1830) Shareholders Will Receive A Smaller Dividend Than Last Year

Perfect Medical Health Management Limited (HKG:1830) is reducing its dividend from last year's comparable payment to HK$0.071 on the 30th of September. The dividend yield of 6.3% is still a nice boost to shareholder returns, despite the cut.

View our latest analysis for Perfect Medical Health Management

Perfect Medical Health Management's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 100% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only . Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Looking forward, earnings per share is forecast to rise by 81.7% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 66% which brings it into quite a comfortable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the annual payment back then was HK$0.025, compared to the most recent full-year payment of HK$0.248. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. 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.

Perfect Medical Health Management Might Find It Hard To Grow Its Dividend

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. Perfect Medical Health Management has impressed us by growing EPS at 25% per year over the past five years. While EPS is growing rapidly, Perfect Medical Health Management paid out a very high 100% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Our Thoughts On Perfect Medical Health Management's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Perfect Medical Health Management that investors should know about before committing capital to this stock. 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.