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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. UMP Healthcare Holdings Limited (HKG:722) has paid a dividend to shareholders in the last few years. It currently yields 1.8%. Let's dig deeper into whether UMP Healthcare Holdings should have a place in your portfolio.

Check out our latest analysis for UMP Healthcare Holdings

5 questions I ask before picking a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Is its annual yield among the top 25% of dividend-paying companies?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has it increased its dividend per share amount over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

How well does UMP Healthcare Holdings fit our criteria?

UMP Healthcare Holdings has a trailing twelve-month payout ratio of more than 200% of earnings, meaning that the dividend is predominantly funded by retained earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you're eyeing out is reliable in its payments. Unfortunately, it is really too early to view UMP Healthcare Holdings as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Compared to its peers, UMP Healthcare Holdings has a yield of 1.8%, which is on the low-side for Healthcare stocks.

Next Steps:

After digging a little deeper into UMP Healthcare Holdings's yield, it's easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I've compiled three essential aspects you should further research: