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

AAG Energy Holdings Limited's (HKG:2686) dividend is being reduced to HK$0.072 on the 9th of June. Based on this payment, the dividend yield will be 4.7%, which is lower than the average for the industry.

See our latest analysis for AAG Energy Holdings

AAG Energy Holdings' Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, AAG Energy Holdings was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

If the trend of the last few years continues, EPS will grow by 49.6% over the next 12 months. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

AAG Energy Holdings' Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2018, the first annual payment was CN¥0.02, compared to the most recent full-year payment of CN¥0.059. This works out to be a compound annual growth rate (CAGR) of approximately 31% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that AAG Energy Holdings has grown earnings per share at 50% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like AAG Energy Holdings' Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like AAG Energy Holdings does. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. For instance, we've picked out 2 warning signs for AAG Energy Holdings that investors should take into consideration. 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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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.