Perfect Shape Medical Limited (HKG:1830) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 19th of August in order to receive the dividend, which the company will pay on the 13th of September.
Perfect Shape Medical's next dividend payment will be HK$0.19 per share. Last year, in total, the company distributed HK$0.29 to shareholders. Last year's total dividend payments show that Perfect Shape Medical has a trailing yield of 8.4% on the current share price of HK$3.45. If you buy this business for its dividend, you should have an idea of whether Perfect Shape Medical's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for Perfect Shape Medical
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. Last year, Perfect Shape Medical paid out 100% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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. Over the last year it paid out 68% of its free cash flow as dividends, within the usual range for most companies.
It's good to see that while Perfect Shape Medical's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Click here to see how much of its profit Perfect Shape Medical paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Perfect Shape Medical has grown its earnings rapidly, up 28% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 7 years, Perfect Shape Medical has increased its dividend at approximately 42% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Has Perfect Shape Medical got what it takes to maintain its dividend payments? Perfect Shape Medical has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy Perfect Shape Medical today.
Want to learn more about Perfect Shape Medical? Here's a visualisation of its historical rate of revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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