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The board of Raffles Medical Group Ltd (SGX:BSL) has announced that it will be paying its dividend of SGD0.025 on the 23rd of May, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 2.7%, which is in line with the average for the industry.
View our latest analysis for Raffles Medical Group
Raffles Medical Group's Future Dividend Projections Appear Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Raffles Medical Group's was paying out quite a large proportion of earnings and 85% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.
Over the next year, EPS is forecast to expand by 36.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 57% by next year, which is in a pretty sustainable range.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was SGD0.0167, compared to the most recent full-year payment of SGD0.025. This works out to be a compound annual growth rate (CAGR) of approximately 4.1% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
Raffles Medical Group May Find It Hard To Grow The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Raffles Medical Group's EPS was effectively flat over the past five years, which could stop the company from paying more every year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.
Our Thoughts On Raffles Medical Group's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Raffles Medical Group's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Raffles Medical Group has been making. We would probably look elsewhere for an income investment.