Third Age Health Services (NZSE:TAH) Is Increasing Its Dividend To NZ$0.04

Third Age Health Services Limited (NZSE:TAH) has announced that it will be increasing its dividend on the 20th of June to NZ$0.04. This will take the annual payment from 3.1% to 3.1% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Third Age Health Services

Third Age Health Services' Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend made up a very large portion of earnings and also represented 84% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Over the next year, EPS could expand by 3.4% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 70% by next year, which is in a pretty sustainable range.

Third Age Health Services Doesn't Have A Long Payment History

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Third Age Health Services has only grown its earnings per share at 3.4% per annum over the past three years. Third Age Health Services' earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

Our Thoughts On Third Age Health Services' Dividend

Overall, we always like to see the dividend being raised, but we don't think Third Age Health Services will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Third Age Health Services has been making. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 3 warning signs for Third Age Health Services that investors need to be conscious of moving forward. Is Third Age Health Services not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.