It Might Not Be A Great Idea To Buy HC Surgical Specialists Limited (Catalist:1B1) For Its Next Dividend

HC Surgical Specialists Limited (Catalist:1B1) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase HC Surgical Specialists' shares before the 1st of March in order to be eligible for the dividend, which will be paid on the 13th of March.

The company's next dividend payment will be S$0.007 per share, and in the last 12 months, the company paid a total of S$0.014 per share. Looking at the last 12 months of distributions, HC Surgical Specialists has a trailing yield of approximately 4.7% on its current stock price of S$0.295. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for HC Surgical Specialists

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. HC Surgical Specialists paid out more than half (59%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit HC Surgical Specialists paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that HC Surgical Specialists's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. HC Surgical Specialists's dividend payments per share have declined at 13% per year on average over the past seven years, which is uninspiring.

Final Takeaway

Has HC Surgical Specialists got what it takes to maintain its dividend payments? HC Surgical Specialists has been unable to generate earnings growth, but at least its dividend looks sustainable, with its profit and cashflow payout ratios within reasonable limits. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

With that being said, if you're still considering HC Surgical Specialists as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that HC Surgical Specialists is showing 5 warning signs in our investment analysis, and 2 of those don't sit too well with us...

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.