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

By
Simply Wall St
Published
March 31, 2022
SEHK:2666
Source: Shutterstock

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 7.0% to 7.0%, providing a nice boost to shareholder returns.

Check out our latest analysis for Genertec Universal Medical Group

Genertec Universal Medical Group's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Genertec Universal Medical Group 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 22.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
SEHK:2666 Historic Dividend March 31st 2022

Genertec Universal Medical Group Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from CN¥0.11 in 2016 to the most recent annual payment of CN¥0.29. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see Genertec Universal Medical Group has been growing its earnings per share at 14% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

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. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Genertec Universal Medical Group (of which 1 makes us a bit uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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