Modern Dental Group (HKG:3600) Has Announced That It Will Be Increasing Its Dividend To HK$0.06

Modern Dental Group Limited (HKG:3600) will increase its dividend on the 10th of October to HK$0.06, which is 62% higher than last year's payment from the same period of HK$0.037. This makes the dividend yield about the same as the industry average at 2.5%.

View our latest analysis for Modern Dental Group

Modern Dental Group's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Based on the last payment, Modern Dental Group was paying only paying out a fraction of earnings, but the payment was a massive 104% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 61.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 23%, which is in the range that makes us comfortable with the sustainability of the dividend.

Modern Dental Group's Dividend Has Lacked Consistency

Modern Dental Group has been paying dividends for a while, but the track record isn't stellar. This suggests that the dividend might not be the most reliable. The annual payment during the last 7 years was HK$0.042 in 2016, and the most recent fiscal year payment was HK$0.081. This works out to be a compound annual growth rate (CAGR) of approximately 9.8% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Modern Dental Group has seen EPS rising for the last five years, at 21% per annum. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income 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. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Modern Dental Group stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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