Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that AIA Group Limited (HKG:1299) is about to go ex-dividend in just 2 days. This means that investors who purchase shares on or after the 3rd of June will not receive the dividend, which will be paid on the 19th of June.
The upcoming dividend for AIA Group is HK$0.93 per share, increased from last year’s total dividends per share of HK$0.16. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether AIA Group can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. AIA Group paid out a comfortable 29% of its profit last year.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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, AIA Group’s earnings per share have been growing at 14% a year for the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. AIA Group has delivered an average of 22% per year annual increase in its dividend, based on the past nine years of dividend payments. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Has AIA Group got what it takes to maintain its dividend payments? Companies like AIA Group that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly – this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating AIA Group more closely.
In light of that, while AIA Group has an appealing dividend, it’s worth knowing the risks involved with this stock. For example, we’ve found 1 warning sign for AIA Group that we recommend you consider before investing in the business.
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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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. Thank you for reading.