EC Healthcare (HKG:2138) cuts its dividend to $0.042

EC Healthcare (HKG: 2138) dividend is reduced to HK$0.042 on September 20. This payout brings the dividend yield to 1.8%, providing only a modest boost to overall returns.

Check out our latest analysis for EC Healthcare

EC Healthcare payment provides strong revenue coverage

Even a low dividend yield can be attractive if it persists for years. Prior to this announcement, EC Healthcare’s dividend was a fairly large proportion of earnings, but only 27% of free cash flow. This leaves a lot of money to reinvest in the business.

Over the next year, EPS is expected to increase by 134.6%. Assuming the dividend continues on recent trends, we think the payout rate could be 45%, which would be comfortable enough to drive the dividend forward.

SEHK: 2138 Historic dividend June 26, 2022

EC Healthcare’s dividend lacks consistency

It’s heartening to see that EC Healthcare has been paying a dividend for a number of years now, but it’s been cut at least once during that time. This suggests that the dividend may not be the most reliable. Since 2016, the first annual payment was HK$0.019, compared to HK$0.14 for the last annual payment. This implies that the company has increased its distributions at an annual rate of approximately 40% over this period. EC Healthcare has increased its distributions at a rapid pace despite cutting the dividend at least once in the past. Companies that have cut once often cut again, so we would be cautious about buying these stocks just for the dividend income.

Dividend growth prospects are limited

Since the dividend has been reduced in the past, we need to check if earnings are increasing and if this could lead to higher dividends in the future. Over the past five years, EC Healthcare’s earnings per share have declined approximately 4.2% per year. Lower earnings will inevitably lead the company to pay a lower dividend based on lower earnings. Earnings are expected to rise over the next 12 months and if that happens we might still be a bit cautious until it becomes a trend.

Our thoughts on the EC Healthcare dividend

Overall, the dividend seems to have been a bit high, which is why it has now been reduced. In the past, payouts have been volatile, but in the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. Yet investors must consider a host of other factors, aside from dividend payments, when analyzing a company. For example, we identified 1 warning sign for EC Healthcare which you should be aware of before investing. EC Healthcare not quite the opportunity you were looking for? Why not check out our selection of the best dividend stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

About Warren Dockery

Check Also

Endurance Technologies (NSE:ENDURANCE) next dividend will be higher than last year

Endurance Technologies Limited (NSE: ENDURANCE) announced that it will increase its dividend from last year’s …