Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see PAX Global Technology Limited (HKG:327) is about to trade ex-dividend in the next 2 days. If you purchase the stock on or after the 21st of August, you won’t be eligible to receive this dividend, when it is paid on the 10th of September.
PAX Global Technology’s upcoming dividend is HK$0.04 a share, following on from the last 12 months, when the company distributed a total of HK$0.08 per share to shareholders. Based on the last year’s worth of payments, PAX Global Technology has a trailing yield of 2.5% on the current stock price of HK$3.14. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. PAX Global Technology is paying out just 15% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (55%) of its free cash flow in the past year, which is within an average range for most companies.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, PAX Global Technology’s earnings per share have been growing at 20% a year for the past five years. PAX Global Technology is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. PAX Global Technology has delivered an average of 19% per year annual increase in its dividend, based on the past 4 years of dividend payments. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is PAX Global Technology an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, PAX Global Technology paid out less than half its earnings and a bit over half its free cash flow. It’s a promising combination that should mark this company worthy of closer attention.
Wondering what the future holds for PAX Global Technology? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.