Medicare Group Q.P.S.C's (DSM:MCGS) Dividend Will Be Reduced To QAR0.198

Medicare Group Q.P.S.C. (DSM:MCGS) is reducing its dividend to QAR0.198 on the 1st of Januarywhich is 10.0% less than last year's comparable payment of QAR0.22. However, the dividend yield of 5.0% is still a decent boost to shareholder returns.

See our latest analysis for Medicare Group Q.P.S.C

Medicare Group Q.P.S.C's Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Medicare Group Q.P.S.C's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 112% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS could expand by 3.8% if recent trends continue. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 53% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was QAR0.30 in 2015, and the most recent fiscal year payment was QAR0.22. The dividend has shrunk at around 3.1% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Medicare Group Q.P.S.C May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings per share has been crawling upwards at 3.8% per year. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. To that end, Medicare Group Q.P.S.C has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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