Shanghai Kindly Medical Instruments' (HKG:1501) Shareholders Will Receive A Smaller Dividend Than Last Year

Shanghai Kindly Medical Instruments Co., Ltd. (HKG:1501) is reducing its dividend to HK$0.32 on the 20th of June. The dividend yield will be in the average range for the industry at 2.2%.

Check out our latest analysis for Shanghai Kindly Medical Instruments

Shanghai Kindly Medical Instruments' Earnings Easily Cover the Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Shanghai Kindly Medical Instruments is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to expand by 23.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 4.9%, which is in the range that makes us comfortable with the sustainability of the dividend.

Shanghai Kindly Medical Instruments' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The dividend has gone from CN¥0.17 in 2020 to the most recent annual payment of CN¥0.26. This means that it has been growing its distributions at 22% per annum over that time. Shanghai Kindly Medical Instruments 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.

The Dividend Looks Likely To Grow

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. Shanghai Kindly Medical Instruments has impressed us by growing EPS at 16% per year over the past five years. Shanghai Kindly Medical Instruments definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Shanghai Kindly Medical Instruments' Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Shanghai Kindly Medical Instruments that investors should take into consideration. Is Shanghai Kindly Medical Instruments not quite the opportunity you were looking for? Why not check out our selection of top 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.