Genertec Universal Medical Group's (HKG:2666) Shareholders Will Receive A Bigger Dividend Than Last Year

Genertec Universal Medical Group Company Limited (HKG:2666) has announced that it will be increasing its dividend on the 27th of June to HK$0.36. This will take the dividend yield from 6.8% to 14%, providing a nice boost to shareholder returns.

View our latest analysis for Genertec Universal Medical Group

Genertec Universal Medical Group'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. Based on the last payment, Genertec Universal Medical Group was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share is forecast to rise by 21.2% over the next year. If the dividend continues on this path, the payout ratio could be 70% by next year, which we think can be pretty sustainable going forward.

Genertec Universal Medical Group Is Still Building Its Track Record

It is great to see that Genertec Universal Medical Group has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2016, the first annual payment was CN¥0.11, compared to the most recent full-year payment of CN¥0.29. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Genertec Universal Medical Group has grown earnings per share at 14% per year over the past five years. Genertec Universal Medical Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Genertec Universal Medical Group's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Genertec Universal Medical Group's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Genertec Universal Medical Group has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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