CTEC Stock Price: what’s behind the dividend payout ratio of 203% 

• CTEC stock price: Despite being a mid-cap company, it is not reinvesting its net profits 
• The stock is surfing the 50-day EMA and is likely to break past the immediate support level
• The company is paying out regular dividends but there is a lot behind it, see more in the article

ConvaTec Group Plc (LON: CTEC) is a publicly traded company that is listed on the London Stock Exchange. Convatec Primary operates as a holding company, which engages in the development, manufacture and sales of medical products and technologies which are related to therapies for the management of chronic conditions. 

Financially, the company has posted a revenue of $1.68B in its last year’s annual; report. If we look at the growth, it is merely a noticeable CAGR of 4.1%. Considering the market cap of the company which is $4B, a mid-cap company is expected to provide way better growth numbers. However, the answer is hidden in the firm’s net profitability and cash flows. In 2022 the firm reported a net profit of $51M while generating an operating cash flow of $228M, the operating cash flow to EBIT ratio is 63% which is an impressive number. 

What’s behind the 203% dividend payout ratio?

Another questionable thing is the firm’s dividend payout ratios, in 2021 the management declared a payout of 103% which means they paid out 100% of the net profit and that extra 3% from the cash reserves. Something similar happened in 2022 where the number was 203% which means that more than twice the net profit was paid out as dividends. 

However, the main question here is why the company is distributing all of its net profit as dividends and using its reserves to cover the left-out percentages. Looking at the shareholding pattern, we can see that the promoters, who own 41% of the total equity, are benefiting the most from these dividends. This practice not only hinders the company’s growth potential by preventing reinvestments, but it also depletes the reserves for no good.

Technical Analysis and Price Prediction of CTEC Stock

The CTEC stock price is currently trading at a level of $223 while surfing its 50 EMA at $221. The immediate support level for the CTEC stock is at $218 while on the upper side. The immediate resistance level is at $235. If the stock breaks any of these, the 2nd support and resistances are at the levels of $205 and $ 242 respectively. 

The RSI graph has rebounded from the oversold level of 70 after the CTEC stock price reclaimed its immediate resistance. At present, the RSI line is at its neutral level of 47. The stock is seen taking support from its 50-day EMA. A rebound is likely to occur. If things go this way, then the Bulls will try to break the resistance level. Otherwise, they may fall short of the EMA line.

Conclusion

CONVATE Group plc (LON: CTEC) is a listed company on the London Stock Exchange. Which is primarily engaged in medical products. The management is focusing on dividends rather than growth despite being a mid-cap stock. The stock price is currently on its 50-day EMA and is likely to move towards its resistance 

Technical Levels

Support levels: £218 and  £205

Resistance levels: £233 and £242

Disclaimer

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