Readers hoping to buy HC Surgical Specialists Limited (Catalist:1B1) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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. Meaning, you will need to purchase HC Surgical Specialists' shares before the 1st of March to receive the dividend, which will be paid on the 13th of March.

The company's next dividend payment will be S$0.01 per share, and in the last 12 months, the company paid a total of S$0.02 per share. Based on the last year's worth of payments, HC Surgical Specialists has a trailing yield of 4.9% on the current stock price of SGD0.41. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View 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. Its dividend payout ratio is 86% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. It could become a concern if earnings started to decline. A useful secondary check can be to evaluate whether HC Surgical Specialists generated enough free cash flow to afford its dividend. Over the last year it paid out 65% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that HC Surgical Specialists's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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 in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see HC Surgical Specialists's earnings per share have risen 20% per annum over the last five years. The company paid out most of its earnings as dividends over the last year, even though business is booming and earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. HC Surgical Specialists's dividend payments per share have declined at 9.3% per year on average over the past six years, which is uninspiring. HC Surgical Specialists is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Is HC Surgical Specialists an attractive dividend stock, or better left on the shelf? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see HC Surgical Specialists's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 86% and 65% respectively. In summary, it's hard to get excited about HC Surgical Specialists from a dividend perspective.

While it's tempting to invest in HC Surgical Specialists for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 5 warning signs for HC Surgical Specialists that we strongly recommend you have a look at before investing in the company.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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