It looks like UMP Healthcare Holdings Limited (HKG:722) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 3rd of December to receive the dividend, which will be paid on the 22nd of January.
UMP Healthcare Holdings's next dividend payment will be HK$0.025 per share. Last year, in total, the company distributed HK$0.032 to shareholders. Looking at the last 12 months of distributions, UMP Healthcare Holdings has a trailing yield of approximately 2.3% on its current stock price of HK$1.4. If you buy this business for its dividend, you should have an idea of whether UMP Healthcare Holdings's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's 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. UMP Healthcare Holdings paid out 187% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 69% of its free cash flow as dividends, within the usual range for most companies.
It's good to see that while UMP Healthcare Holdings's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see UMP Healthcare Holdings's earnings per share have risen 19% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past three years, UMP Healthcare Holdings has increased its dividend at approximately 17% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Is UMP Healthcare Holdings worth buying for its dividend? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Curious about whether UMP Healthcare Holdings has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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