New Century Healthcare Holding's (HKG:1518) Shareholders Will Receive A Smaller Dividend Than Last Year

New Century Healthcare Holding Co. Limited (HKG:1518) is reducing its dividend from last year's comparable payment to CN¥0.0221 on the 2nd of July. This means that the annual payment is 1.7% of the current stock price, which is lower than what the rest of the industry is paying.

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New Century Healthcare Holding's Projected Earnings Seem Likely To Cover Future Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, New Century Healthcare Holding was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share could rise by 40.5% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for New Century Healthcare Holding

New Century Healthcare Holding's Dividend Has Lacked Consistency

Looking back, New Century Healthcare Holding's dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 7 years was CN¥0.0399 in 2018, and the most recent fiscal year payment was CN¥0.0203. This works out to be a decline of approximately 9.2% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. New Century Healthcare Holding has seen EPS rising for the last five years, at 41% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

New Century Healthcare Holding Looks Like A Great Dividend Stock

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that New Century Healthcare Holding has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

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 instance, we've picked out 2 warning signs for New Century Healthcare Holding that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.