Vincent Medical Holdings Limited (HKG:1612) is reducing its dividend to HK$0.025 on the 24th of June. The dividend yield of 5.8% is still a nice boost to shareholder returns, despite the cut.
Vincent Medical Holdings' Earnings Easily Cover the Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Vincent Medical Holdings' earnings. This means that a large portion of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to fall by 6.2%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 77%, which is definitely on the higher side.
Vincent Medical Holdings' Dividend Has Lacked Consistency
Looking back, Vincent Medical Holdings' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. The first annual payment during the last 5 years was HK$0.015 in 2017, and the most recent fiscal year payment was HK$0.05. This implies that the company grew its distributions at a yearly rate of about 27% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Vincent Medical Holdings has impressed us by growing EPS at 12% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Vincent Medical Holdings Looks Like A Great Dividend Stock
In general, we don't like to see the dividend being cut, especially when the company has such high potential like Vincent Medical Holdings does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 4 warning signs for Vincent Medical Holdings that investors should take into consideration. Is Vincent Medical Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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