Zota Health Care Limited (NSE: ZOTA) investors are expected to receive a payment of 1.00 per share on October 30. Including this payment, the dividend yield on the stock will be 0.3%, which is a modest boost to shareholder returns.
While dividend yield is important for income investors, it is also important to take into account any significant change in the price of the shares, as this will generally outweigh any gains from distributions. Investors will be delighted to see that Zota Health Care’s share price has risen 87% in the past 3 months, which is good for shareholders and may also explain a drop in dividend yield.
Check out our latest review for Zota Health Care
Zota Health Care pays more than it earns
The dividend yield is a bit low, but the sustainability of payments is also an important part of valuing an income security. Based on the last payment, Zota Health Care’s profits did not cover the dividend, but the company was generating enough cash instead. Since dividend is an outflow of cash, we believe cash is more important than accounting measures of profit when valuing dividend, so this is a mitigating factor.
If the company fails to turn the tide, EPS could drop 27.9% over the next year. If the dividend continues on the same path as it has recently been, the 12-month payout ratio could be 279%, which is certainly a bit high to be sustainable going forward.
Zota Health Care dividend lacks consistency
The track record is not the longest, but we are already seeing a bit of instability in payments. Since 2018, the dividend has fallen from 2.14 to 1.00. Dividend payments have fallen sharply, down 53% during this period. In general, we don’t like to see a dividend that decreases over time, as this can degrade shareholder returns and indicate that the company may be in trouble.
The potential for dividend growth is fragile
Dividends have gone in the wrong direction, so we really want to see a different trend in earnings per share. Earnings per share have fallen 28% over the past five years. This sharp drop may indicate that the company is going through a difficult time, which could limit its ability to pay a larger dividend each year in the future.
The dividend could prove to be unreliable
Overall, we don’t think this company is generating a good stock of dividends, even though the dividend has not been reduced this year. In the past, payments have been volatile, but in the short term the dividend could be reliable as the company generates enough cash to cover it. Overall, we don’t think this company has the makings of a good income stock.
Market movements testify to the high value of a coherent dividend policy compared to a more unpredictable one. At the same time, there are other factors that our readers should be aware of before investing any capital in a stock. For example, we have identified 6 warning signs for Zota Health Care (1 is potentially serious!) Which you should be aware of before investing. We have also set up a list of global stocks with a solid dividend.
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