Stock Analysis

Only Four Days Left To Cash In On Apiam Animal Health's (ASX:AHX) Dividend

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ASX:AHX
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Apiam Animal Health Limited (ASX:AHX) stock is about to trade ex-dividend in four days. You can purchase shares before the 19th of March in order to receive the dividend, which the company will pay on the 23rd of April.

Apiam Animal Health's next dividend payment will be AU$0.012 per share. Last year, in total, the company distributed AU$0.024 to shareholders. Last year's total dividend payments show that Apiam Animal Health has a trailing yield of 3.2% on the current share price of A$0.74. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Apiam Animal Health

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. Apiam Animal Health is paying out an acceptable 55% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 21% of its free cash flow as dividends last year, which is conservatively low.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
ASX:AHX Historic Dividend March 14th 2021

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see Apiam Animal Health's earnings per share have been shrinking at 3.8% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Apiam Animal Health has delivered an average of 11% per year annual increase in its dividend, based on the past four years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Is Apiam Animal Health an attractive dividend stock, or better left on the shelf? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.

If you want to look further into Apiam Animal Health, it's worth knowing the risks this business faces. In terms of investment risks, we've identified 4 warning signs with Apiam Animal Health and understanding them should be part of your investment process.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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