Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Human Health Holdings Limited (HKG:1419) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 3rd of December, you won't be eligible to receive this dividend, when it is paid on the 23rd of December.
Human Health Holdings's upcoming dividend is HK$0.03 a share, following on from the last 12 months, when the company distributed a total of HK$0.03 per share to shareholders. Calculating the last year's worth of payments shows that Human Health Holdings has a trailing yield of 2.6% on the current share price of HK$1.17. If you buy this business for its dividend, you should have an idea of whether Human Health Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Human Health Holdings paying out a modest 42% of its earnings. A useful secondary check can be to evaluate whether Human Health Holdings generated enough free cash flow to afford its dividend. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Human Health Holdings'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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Human Health Holdings's earnings per share have been shrinking at 3.4% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Human Health Holdings's dividend payments are effectively flat on where they were three 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.
Is Human Health Holdings an attractive dividend stock, or better left on the shelf? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Human Health Holdings's dividend merits.
Curious about whether Human Health Holdings has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.