AAG Energy Holdings (HKG:2686) Has Announced That Its Dividend Will Be Reduced To HK$0.072

AAG Energy Holdings Limited (HKG:2686) has announced it will be reducing its dividend payable on the 9th of June to HK$0.072. This means that the dividend yield is 5.5%, which is a bit low when comparing to other companies in the industry.

Check out our latest analysis for AAG Energy Holdings

AAG Energy Holdings' Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, AAG Energy Holdings was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS could expand by 49.6% if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could be 28% by next year, which is in a pretty sustainable range.

AAG Energy Holdings' Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. Since 2018, the first annual payment was CN¥0.02, compared to the most recent full-year payment of CN¥0.059. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. AAG Energy Holdings has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. AAG Energy Holdings has impressed us by growing EPS at 50% per year over the past five years. AAG Energy Holdings is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

We Really Like AAG Energy Holdings' Dividend

Overall, we think that AAG Energy Holdings could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for AAG Energy Holdings that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.