Why Automated Systems Holdings Limited (HKG:771) Should Be In Your Dividend Portfolio
Today we'll take a closer look at Automated Systems Holdings Limited (HKG:771) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.
A high yield and a long history of paying dividends is an appealing combination for Automated Systems Holdings. It would not be a surprise to discover that many investors buy it for the dividends. Some simple research can reduce the risk of buying Automated Systems Holdings for its dividend - read on to learn more.
Explore this interactive chart for our latest analysis on Automated Systems Holdings!
Payout ratios
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Automated Systems Holdings paid out 26% of its profit as dividends, over the trailing twelve month period. This is a medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.
Remember, you can always get a snapshot of Automated Systems Holdings's latest financial position, by checking our visualisation of its financial health.
Dividend Volatility
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. For the purpose of this article, we only scrutinise the last decade of Automated Systems Holdings's dividend payments. The dividend has been cut on at least one occasion historically. During the past ten-year period, the first annual payment was HK$0.06 in 2010, compared to HK$0.03 last year. This works out to be a decline of approximately 5.9% per year over that time. Automated Systems Holdings's dividend has been cut sharply at least once, so it hasn't fallen by 5.9% every year, but this is a decent approximation of the long term change.
When a company's per-share dividend falls we question if this reflects poorly on either external business conditions, or the company's capital allocation decisions. Either way, we find it hard to get excited about a company with a declining dividend.
Dividend Growth Potential
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. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Automated Systems Holdings has grown its earnings per share at 13% per annum over the past five years. A company paying out less than a quarter of its earnings as dividends, and growing earnings at more than 10% per annum, looks to be right in the cusp of its growth phase. At the right price, we might be interested.
Conclusion
Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're glad to see Automated Systems Holdings has a low payout ratio, as this suggests earnings are being reinvested in the business. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. Automated Systems Holdings fits all of our criteria, and we think there are a lot of positives to it from a dividend perspective.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Automated Systems Holdings that investors should take into consideration.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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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. 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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About SEHK:771
Automated Systems Holdings
An investment holding company, provides information technology (IT) services to corporate customers in Hong Kong, the United States, Singapore, Mainland China, Macau, Thailand, and Taiwan.
Flawless balance sheet, good value and pays a dividend.