Green Cross Health Limited( NZSE:GXH ) will increase its dividend on the 18th of December to NZ$0.0353, which is 20% higher than last year's payment from the same period of NZ$0.0294. This will take the annual payment to 5.3% of the stock price, which is above what most companies in the industry pay.
Green Cross Health's Projected Earnings Seem Likely To Cover Future Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Green Cross Health's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share could rise by 2.6% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 52% by next year, which is in a pretty sustainable range.
Check out our latest analysis for Green Cross Health
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was NZ$0.07 in 2015, and the most recent fiscal year payment was NZ$0.06. Doing the maths, this is a decline of about 1.5% per year. A company that decreases its dividend over time generally isn't what we are looking for.
Green Cross Health May Find It Hard To Grow The Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, Green Cross Health has only grown its earnings per share at 2.6% per annum over the past five years. Growth of 2.6% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
Our Thoughts On Green Cross Health's Dividend
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Green Cross Health you should be aware of, and 1 of them makes us a bit uncomfortable. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature.
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