UMP Healthcare Holdings (HKG:722) Is Increasing Its Dividend To HK$0.028

UMP Healthcare Holdings Limited's (HKG:722) dividend will be increasing on the 26th of January to HK$0.028, with investors receiving 5.7% more than last year. This will take the dividend yield from 4.6% to 4.6%, providing a nice boost to shareholder returns.

Check out our latest analysis for UMP Healthcare Holdings

UMP Healthcare Holdings' Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, UMP Healthcare Holdings was paying out 83% of earnings, but a comparatively small 21% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

If the trend of the last few years continues, EPS will grow by 35.1% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 67%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

UMP Healthcare Holdings' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The first annual payment during the last 5 years was HK$0.02 in 2016, and the most recent fiscal year payment was HK$0.038. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

UMP Healthcare Holdings' Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. UMP Healthcare Holdings has seen EPS rising for the last five years, at 35% per annum. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which UMP Healthcare Holdings hasn't been doing.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 4 warning signs for UMP Healthcare Holdings that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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.

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