UMP Healthcare Holdings (HKG:722) Is Paying Out Less In Dividends Than Last Year

UMP Healthcare Holdings Limited (HKG:722) has announced it will be reducing its dividend payable on the 19th of April to HK$0.013, which is 24% lower than what investors received last year for the same period. However, the dividend yield of 9.2% is still a decent boost to shareholder returns.

View our latest analysis for UMP Healthcare Holdings

UMP Healthcare Holdings' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, UMP Healthcare Holdings' dividend made up quite a large proportion of earnings but only 50% 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.

Over the next year, EPS could expand by 56.3% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which is in the range that makes us comfortable with the sustainability of the dividend.

UMP Healthcare Holdings' Dividend Has Lacked Consistency

It's comforting to see that UMP Healthcare Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of HK$0.02 in 2017 to the most recent total annual payment of HK$0.047. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. 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

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 56% per annum. However, UMP Healthcare Holdings isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

UMP Healthcare Holdings Looks Like A Great Dividend Stock

Overall, we think that UMP Healthcare Holdings could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. 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 collection of strong dividend payers.

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