HC Surgical Specialists Limited (Catalist:1B1) is reducing its dividend to SGD0.01 on the 24th of Novemberwhich is 17% less than last year's comparable payment of SGD0.012. The yield is still above the industry average at 5.5%.

Check out our latest analysis for HC Surgical Specialists

HC Surgical Specialists Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, HC Surgical Specialists' profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, EPS could fall by 8.7% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 123%, which could put the dividend under pressure if earnings don't start to improve.

HC Surgical Specialists' Dividend Has Lacked Consistency

HC Surgical Specialists has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the dividend has gone from SGD0.036 total annually to SGD0.02. Doing the maths, this is a decline of about 8.1% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth May Be Hard To Come By

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. HC Surgical Specialists has seen earnings per share falling at 8.7% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

HC Surgical Specialists' Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 6 warning signs for HC Surgical Specialists (1 is a bit unpleasant!) that you should be aware of before investing. Is HC Surgical Specialists not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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