Readers hoping to buy UMP Healthcare Holdings Limited (HKG:722) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 12th of March in order to be eligible for this dividend, which will be paid on the 9th of April.
UMP Healthcare Holdings's next dividend payment will be HK$0.01 per share, on the back of last year when the company paid a total of HK$0.033 to shareholders. Looking at the last 12 months of distributions, UMP Healthcare Holdings has a trailing yield of approximately 3.8% on its current stock price of HK$0.87. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. UMP Healthcare Holdings paid out 62% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether UMP Healthcare Holdings generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 14% of its cash flow last year.
It's positive to see that UMP Healthcare Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see UMP Healthcare Holdings's earnings per share have been shrinking at 4.8% a year over the previous five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. UMP Healthcare Holdings has delivered an average of 13% per year annual increase in its dividend, based on the past four years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
The Bottom Line
Has UMP Healthcare Holdings got what it takes to maintain its dividend payments? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. To summarise, UMP Healthcare Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.
If you want to look further into UMP Healthcare Holdings, it's worth knowing the risks this business faces. To help with this, we've discovered 4 warning signs for UMP Healthcare Holdings that you should be aware of before investing in their shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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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