It looks like Modern Dental Group Limited (HKG:3600) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 13th of September will not receive this dividend, which will be paid on the 10th of October.
Modern Dental Group's next dividend payment will be HK$0.031 per share, and in the last 12 months, the company paid a total of HK$0.045 per share. Based on the last year's worth of payments, Modern Dental Group stock has a trailing yield of around 3.2% on the current share price of HK$1.42. 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! As a result, readers should always check whether Modern Dental Group has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Modern Dental Group paying out a modest 42% of its earnings. 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. Dividends consumed 63% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Modern Dental Group'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?
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. Readers will understand then, why we're concerned to see Modern Dental Group's earnings per share have dropped 5.0% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Modern Dental Group has delivered an average of 2.3% per year annual increase in its dividend, based on the past 3 years of dividend payments.
The Bottom Line
Has Modern Dental Group got what it takes to maintain its dividend payments? Earnings per share have fallen significantly, although at least Modern Dental Group paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Modern Dental Group's dividend merits.
Want to learn more about Modern Dental Group? Here's a visualisation of its historical rate of revenue and earnings growth.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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