UMP Healthcare Holdings (HKG:722) Will Pay A Larger Dividend Than Last Year At HK$0.03

UMP Healthcare Holdings Limited (HKG:722) has announced that it will be increasing its dividend from last year's comparable payment on the 27th of January to HK$0.03. This will take the dividend yield to an attractive 6.7%, providing a nice boost to shareholder returns.

Our analysis indicates that 722 is potentially undervalued!

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. The last dividend was quite easily covered by UMP Healthcare Holdings' earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS could expand by 8.6% if recent trends continue. If the dividend continues on this path, the payout ratio could be 50% by next year, which we think can be pretty sustainable going forward.

UMP Healthcare Holdings' Dividend Has Lacked Consistency

Looking back, UMP Healthcare Holdings' dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the annual payment back then was HK$0.02, compared to the most recent full-year payment of HK$0.045. This means that it has been growing its distributions at 14% per annum over that time. UMP Healthcare Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

UMP Healthcare Holdings Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. UMP Healthcare Holdings has impressed us by growing EPS at 8.6% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

UMP Healthcare Holdings Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for UMP Healthcare Holdings that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of 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.