Stock Analysis

Apiam Animal Health (ASX:AHX) Has Announced A Dividend Of AU$0.012

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ASX:AHX
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The board of Apiam Animal Health Limited (ASX:AHX) has announced that it will pay a dividend of AU$0.012 per share on the 22nd of October. Based on this payment, the dividend yield on the company's stock will be 3.6%, which is an attractive boost to shareholder returns.

See our latest analysis for Apiam Animal Health

Apiam Animal Health's Earnings Easily Cover the Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Apiam Animal Health's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 40.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 71% by next year, which is in a pretty sustainable range.

historic-dividend
ASX:AHX Historic Dividend September 15th 2021

Apiam Animal Health Is Still Building Its Track Record

It is great to see that Apiam Animal Health has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The first annual payment during the last 5 years was AU$0.016 in 2016, and the most recent fiscal year payment was AU$0.024. This means that it has been growing its distributions at 8.4% per annum over that time. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Apiam Animal Health has grown earnings per share at 119% per year over the past five years. Apiam Animal Health is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We'd also point out that Apiam Animal Health has issued stock equal to 15% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

We Really Like Apiam Animal Health's Dividend

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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 example, we've picked out 4 warning signs for Apiam Animal Health that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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