Stock Analysis

Apiam Animal Health (ASX:AHX) Has Announced That Its Dividend Will Be Reduced To A$0.004

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ASX:AHX
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Apiam Animal Health Limited (ASX:AHX) is reducing its dividend to A$0.004 on the 21st of Octoberwhich is 67% less than last year's comparable payment of A$0.012. This means that the annual payment will be 2.1% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Apiam Animal Health

Apiam Animal Health's Dividend Is Well Covered By Earnings

Solid dividend yields are great, but they only really help us if 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 a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next year is set to see EPS grow by 100.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

historic-dividend
ASX:AHX Historic Dividend September 2nd 2022

Apiam Animal Health's Dividend Has Lacked Consistency

It's comforting to see that Apiam Animal Health has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. There hasn't been much of a change in the dividend over the last 6 years. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Apiam Animal Health's EPS has fallen by approximately 11% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

We should note that Apiam Animal Health has issued stock equal to 30% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On Apiam Animal Health's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for Apiam Animal Health that investors need to be conscious of moving forward. Is Apiam Animal Health not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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About ASX:AHX

Apiam Animal Health

Apiam Animal Health Limited, a vertically integrated animal health company, provides veterinary products and services to production and companion animals in Australia.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth3
Past Performance1
Financial Health5
Dividends2

Read more about these checks in the individual report sections or in our analysis model.

Excellent balance sheet with moderate growth potential.