Why You Might Be Interested In Green Cross Health Limited (NZSE:GXH) For Its Upcoming Dividend

It looks like Green Cross Health Limited (NZSE:GXH) is about to go ex-dividend in the next 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Green Cross Health's shares before the 4th of December in order to receive the dividend, which the company will pay on the 18th of December.

The company's next dividend payment will be NZ$0.0352941 per share. Last year, in total, the company distributed NZ$0.06 to shareholders. Last year's total dividend payments show that Green Cross Health has a trailing yield of 5.6% on the current share price of NZ$1.08. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Green Cross Health has been able to grow its dividends, or if the dividend might be cut.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Green Cross Health's payout ratio is modest, at just 47% of profit. 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. Luckily it paid out just 19% of its free cash flow last year.

It's positive to see that Green Cross Health'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.

See our latest analysis for Green Cross Health

Click here to see how much of its profit Green Cross Health paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Green Cross Health, with earnings per share up 5.3% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Green Cross Health has seen its dividend decline 1.5% per annum on average over the past 10 years, which is not great to see.

To Sum It Up

Is Green Cross Health worth buying for its dividend? Earnings per share growth has been growing somewhat, and Green Cross Health is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Green Cross Health is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Green Cross Health, and we would prioritise taking a closer look at it.

So while Green Cross Health looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 3 warning signs for Green Cross Health (1 shouldn't be ignored!) that deserve your attention before investing in the shares.

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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.