Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see China Resources Medical Holdings Company Limited (HKG:1515) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 1st of June in order to receive the dividend, which the company will pay on the 16th of June.
China Resources Medical Holdings's next dividend payment will be HK$0.10 per share, which looks like a nice increase on last year, when the company distributed a total of HK$0.09 to shareholders. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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 China Resources Medical Holdings paying out a modest 29% of its earnings. 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. Fortunately, it paid out only 40% of its free cash flow in the past year.
It's positive to see that China Resources Medical 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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at China Resources Medical Holdings, with earnings per share up 2.4% on average over the last five years. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past six years, China Resources Medical Holdings has increased its dividend at approximately 9.3% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
From a dividend perspective, should investors buy or avoid China Resources Medical Holdings? Earnings per share have been growing moderately, and China Resources Medical Holdings is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but China Resources Medical Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. China Resources Medical Holdings looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks China Resources Medical Holdings is facing. Our analysis shows 2 warning signs for China Resources Medical Holdings and you should be aware of these before buying any shares.
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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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. 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. Thank you for reading.