Apiam Animal Health Limited (ASX:AHX) will pay a dividend of AU$0.012 on the 20th of April. This means that the annual payment will be 2.7% of the current stock price, which is in line with the average for the industry.
Apiam Animal Health's Payment Has Solid Earnings Coverage
We aren't too impressed by dividend yields unless they can be sustained over time. The last payment made up 72% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
Over the next year, EPS is forecast to expand by 60.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 56%, which is in the range that makes us comfortable with the sustainability of the dividend.
Apiam Animal Health Is Still Building Its Track Record
The dividend's track record has been pretty solid, but with only 5 years of history we want to see a few more years of history before making any solid conclusions. The first annual payment during the last 5 years was AU$0.016 in 2017, 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. Apiam Animal Health has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.
Dividend Growth May Be Hard To Come By
The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that Apiam Animal Health's earnings per share has fallen at approximately 9.7% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
We'd also point out that Apiam Animal Health has issued stock equal to 14% 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, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 5 warning signs for Apiam Animal Health that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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