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Could Bamboos Health Care Holdings Limited (HKG:2293) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.
In this case, Bamboos Health Care Holdings likely looks attractive to dividend investors, given its 4.6% dividend yield and five-year payment history. We'd agree the yield does look enticing. There are a few simple ways to reduce the risks of buying Bamboos Health Care Holdings for its dividend, and we'll go through these below.
Explore this interactive chart for our latest analysis on Bamboos Health Care Holdings!
Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. In the last year, Bamboos Health Care Holdings paid out 74% of its profit as dividends. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Bamboos Health Care Holdings paid out 54% of its free cash flow last year, which is acceptable, but is starting to limit the amount of earnings that can be reinvested into the business. 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.
While the above analysis focuses on dividends relative to a company's earnings, we do note Bamboos Health Care Holdings's strong net cash position, which will let it pay larger dividends for a time, should it choose.
We update our data on Bamboos Health Care Holdings every 24 hours, so you can always get our latest analysis of its financial health, here.
Dividend Volatility
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Looking at the data, we can see that Bamboos Health Care Holdings has been paying a dividend for the past five years. During the past five-year period, the first annual payment was HK$0.04 in 2015, compared to HK$0.05 last year. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. Bamboos Health Care Holdings's dividend payments have fluctuated, so it hasn't grown 4.6% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.