The board of Life Healthcare Group Holdings Limited (JSE:LHC) has announced that it will be paying its dividend of ZAR0.17 on the 19th of June, an increased payment from last year’s comparable dividend. This will take the dividend yield to an attractive 2.6%, providing a nice boost to shareholder returns.
See our latest analysis for Life Healthcare Group Holdings
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Life Healthcare Group Holdings’ Payment Has Solid Earnings Coverage
We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. Before making this announcement, Life Healthcare Group Holdings was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 82.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ZAR1.20 in 2013, and the most recent fiscal year payment was ZAR0.50. Doing the maths, this is a decline of about 8.4% per year. Generally, we don’t like to see a dividend that has been declining over time as this can degrade shareholders’ returns and indicate that the company may be running into problems.
Life Healthcare Group Holdings May Find It Hard To Grow The Dividend
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Although it’s important to note that Life Healthcare Group Holdings’ earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. If Life Healthcare Group Holdings is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.
Our Thoughts On Life Healthcare Group Holdings’ Dividend
Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn’t translated into a consistent payment. The payment isn’t stellar, but it could make a decent addition to a dividend portfolio.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we’ve identified 1 warning sign for Life Healthcare Group Holdings that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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