Should You Buy Vincent Medical Holdings Limited (HKG:1612) For Its Upcoming Dividend?

Vincent Medical Holdings Limited (HKG:1612) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Vincent Medical Holdings' shares before the 28th of May in order to receive the dividend, which the company will pay on the 21st of June.

The company's next dividend payment will be HK$0.015 per share, and in the last 12 months, the company paid a total of HK$0.03 per share. Last year's total dividend payments show that Vincent Medical Holdings has a trailing yield of 6.4% on the current share price of HK$0.47. If you buy this business for its dividend, you should have an idea of whether Vincent Medical Holdings's dividend is reliable and sustainable. So we need to investigate whether Vincent Medical Holdings can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Vincent Medical Holdings

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Vincent Medical Holdings paid out a comfortable 31% of its profit last year. A useful secondary check can be to evaluate whether Vincent Medical Holdings generated enough free cash flow to afford its dividend. Luckily it paid out just 8.6% of its free cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Vincent Medical Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Vincent Medical Holdings's earnings per share have risen 13% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Vincent Medical Holdings has delivered an average of 10% per year annual increase in its dividend, based on the past seven years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

Is Vincent Medical Holdings worth buying for its dividend? Vincent Medical Holdings has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past seven years, but the conservative payout ratio makes the current dividend look sustainable. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Vincent Medical Holdings for the dividends alone, you should always be mindful of the risks involved. For example - Vincent Medical Holdings has 2 warning signs we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.