AEON Credit Service (Asia) (HKG:900) Will Pay A Dividend Of HK$0.24

AEON Credit Service (Asia) Company Limited's (HKG:900) investors are due to receive a payment of HK$0.24 per share on 26th of July. This takes the annual payment to 8.4% of the current stock price, which is about average for the industry.

See our latest analysis for AEON Credit Service (Asia)

AEON Credit Service (Asia)'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, AEON Credit Service (Asia)'s earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to expand by 51.6%. If the dividend continues on this path, the payout ratio could be 35% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was HK$0.35 in 2014, and the most recent fiscal year payment was HK$0.48. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% a year over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. In the last five years, AEON Credit Service (Asia)'s earnings per share has shrunk at approximately 2.1% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

AEON Credit Service (Asia)'s Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think AEON Credit Service (Asia) will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think AEON Credit Service (Asia) is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for AEON Credit Service (Asia) you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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