Why It Might Not Make Sense To Buy CHC Healthcare Group (TWSE:4164) For Its Upcoming Dividend

Readers hoping to buy CHC Healthcare Group (TWSE:4164) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase CHC Healthcare Group's shares before the 10th of July to receive the dividend, which will be paid on the 1st of August.

The company's next dividend payment will be NT$2.00487 per share. Last year, in total, the company distributed NT$2.00 to shareholders. Based on the last year's worth of payments, CHC Healthcare Group stock has a trailing yield of around 3.8% on the current share price of NT$52.40. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether CHC Healthcare Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for CHC Healthcare Group

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. Last year, CHC Healthcare Group paid out 97% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether CHC Healthcare Group generated enough free cash flow to afford its dividend. Dividends consumed 56% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while CHC Healthcare Group's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see CHC Healthcare Group's earnings per share have been shrinking at 2.4% 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. CHC Healthcare Group's dividend payments are broadly unchanged compared to where they were 10 years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

Final Takeaway

From a dividend perspective, should investors buy or avoid CHC Healthcare Group? Earnings per share have been in decline, which is not encouraging. What's more, CHC Healthcare Group is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. It's not that we think CHC Healthcare Group is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in CHC Healthcare Group despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 2 warning signs with CHC Healthcare Group and understanding them should be part of your investment process.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com