UMP Healthcare Holdings (HKG:722) Could Be A Buy For Its Upcoming Dividend

It looks like UMP Healthcare Holdings Limited (HKG:722) is about to go ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase UMP Healthcare Holdings' shares on or after the 10th of December, you won't be eligible to receive the dividend, when it is paid on the 10th of January.

The company's upcoming dividend is HK$0.02 a share, following on from the last 12 months, when the company distributed a total of HK$0.033 per share to shareholders. Based on the last year's worth of payments, UMP Healthcare Holdings has a trailing yield of 7.6% on the current stock price of HK$0.435. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether UMP Healthcare Holdings has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for UMP Healthcare 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. UMP Healthcare Holdings paid out 65% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 38% of its free cash flow in the past 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 UMP Healthcare Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see UMP Healthcare Holdings has grown its earnings rapidly, up 24% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, UMP Healthcare Holdings could have strong prospects for future increases to the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past eight years, UMP Healthcare Holdings has increased its dividend at approximately 6.5% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

Should investors buy UMP Healthcare Holdings for the upcoming dividend? We like UMP Healthcare Holdings's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. UMP Healthcare Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while UMP Healthcare Holdings looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, UMP Healthcare Holdings has 4 warning signs (and 1 which can't be ignored) we think you should know about.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.