Modern Dental Group Limited (HKG:3600) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy Modern Dental Group Limited (HKG:3600) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 1st of June in order to receive the dividend, which the company will pay on the 26th of June.

Modern Dental Group's upcoming dividend is HK$0.022 a share, following on from the last 12 months, when the company distributed a total of HK$0.053 per share to shareholders. Based on the last year's worth of payments, Modern Dental Group has a trailing yield of 3.7% on the current stock 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Modern Dental Group

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. Modern Dental Group paid out a comfortable 32% of its profit last year. A useful secondary check can be to evaluate whether Modern Dental Group generated enough free cash flow to afford its dividend. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.

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.

Click here to see how much of its profit Modern Dental Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Modern Dental Group's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Recent growth has not been impressive. 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. Since the start of our data, four years ago, Modern Dental Group has lifted its dividend by approximately 6.0% a year on average.

Final Takeaway

Is Modern Dental Group worth buying for its dividend? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Modern Dental Group is halfway there. Overall we think this is an attractive combination and worthy of further research.

So while Modern Dental Group looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 1 warning sign for Modern Dental Group that we recommend you consider before investing in the business.

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.