Key Things To Consider Before Buying Amino Technologies plc (LON:AMO) For Its Dividend

Today we'll take a closer look at Amino Technologies plc (LON:AMO) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

With a 1.3% yield and a nine-year payment history, investors probably think Amino Technologies looks like a reliable dividend stock. A 1.3% yield is not inspiring, but the longer payment history has some appeal. Some simple research can reduce the risk of buying Amino Technologies for its dividend - read on to learn more.

Explore this interactive chart for our latest analysis on Amino Technologies!

Payout ratios

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. In the last year, Amino Technologies paid out 59% of its profit as dividends. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.

With a strong net cash balance, Amino Technologies investors may not have much to worry about in the near term from a dividend perspective.

Consider getting our latest analysis on Amino Technologies' financial position here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Looking at the last decade of data, we can see that Amino Technologies paid its first dividend at least nine years ago. Although it has been paying a dividend for several years now, the dividend has been cut at least once, and we're cautious about the consistency of its dividend across a full economic cycle. During the past nine-year period, the first annual payment was US$0.03 in 2012, compared to US$0.02 last year. The dividend has shrunk at around 2.8% a year during that period. Amino Technologies' dividend has been cut sharply at least once, so it hasn't fallen by 2.8% every year, but this is a decent approximation of the long term change.

We struggle to make a case for buying Amino Technologies for its dividend, given that payments have shrunk over the past nine years.

Dividend Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share (EPS) are growing. Why take the risk of a dividend getting cut, unless there's a good chance of bigger dividends in future? It's good to see Amino Technologies has been growing its earnings per share at 35% a year over the past five years. With recent, rapid earnings per share growth and a payout ratio of 59%, this business looks like an interesting prospect if earnings are reinvested effectively.

Conclusion

To summarise, shareholders should always check that Amino Technologies' dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. First, we think Amino Technologies has an acceptable payout ratio. Next, earnings growth has been good, but unfortunately the dividend has been cut at least once in the past. Amino Technologies has a credible record on several fronts, but falls slightly short of our standards for a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Are management backing themselves to deliver performance? Check their shareholdings in Amino Technologies in our latest insider ownership analysis.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

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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.
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