Perfect Medical Health Management's (HKG:1830) Upcoming Dividend Will Be Larger Than Last Year's

Perfect Medical Health Management Limited (HKG:1830) has announced that it will be increasing its dividend on the 10th of January to HK$0.18. This will take the annual payment from 7.0% to 7.0% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Perfect Medical Health Management

Perfect Medical Health Management Is Paying Out More Than It Is Earning

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 99% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Earnings per share could rise by 28.9% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 136%, which probably can't continue without starting to put some pressure on the balance sheet.

Perfect Medical Health Management's Dividend Has Lacked Consistency

Perfect Medical Health Management has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from HK$0.025 in 2012 to the most recent annual payment of HK$0.43. This implies that the company grew its distributions at a yearly rate of about 37% over that duration. Perfect Medical Health Management 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.

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

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Perfect Medical Health Management has impressed us by growing EPS at 29% per year over the past five years. EPS has been growing well, but Perfect Medical Health Management has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Perfect Medical Health Management's payments are rock solid. 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. 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. For instance, we've picked out 1 warning sign 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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