AEON Credit Service (Asia) (HKG:900) Has Announced A Dividend Of HK$0.22

AEON Credit Service (Asia) Company Limited's (HKG:900) investors are due to receive a payment of HK$0.22 per share on 28th of October. This makes the dividend yield 8.8%, which will augment investor returns quite nicely.

See our latest analysis for AEON Credit Service (Asia)

AEON Credit Service (Asia)'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. Before making this announcement, AEON Credit Service (Asia) was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

If the trend of the last few years continues, EPS will grow by 1.6% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 54% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of HK$0.32 in 2012 to the most recent total annual payment of HK$0.44. This means that it has been growing its distributions at 3.2% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. AEON Credit Service (Asia) hasn't seen much change in its earnings per share over the last five years. Growth of 1.6% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about AEON Credit Service (Asia)'s payments, as there could be some issues with sustaining them into the future. While AEON Credit Service (Asia) is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, AEON Credit Service (Asia) has 2 warning signs (and 1 which is concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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