Should Budweiser Brewing Company APAC Limited (HKG:1876) Be Part Of Your Income Portfolio?

Is Budweiser Brewing Company APAC Limited (HKG:1876) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

Some readers mightn't know much about Budweiser Brewing Company APAC's 0.9% dividend, as it has only been paying distributions for a year or so. There are a few simple ways to reduce the risks of buying Budweiser Brewing Company APAC for its dividend, and we'll go through these below.

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Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, 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, Budweiser Brewing Company APAC paid out 73% of its profit as dividends. This is a fairly normal payout ratio among most businesses. It allows a higher dividend to be paid to shareholders, but does limit the capital retained in the business - which could be good or bad.

While the above analysis focuses on dividends relative to a company's earnings, we do note Budweiser Brewing Company APAC's strong net cash position, which will let it pay larger dividends for a time, should it choose.

Consider getting our latest analysis on Budweiser Brewing Company APAC's financial position here.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. With a payment history of less than 2 years, we think it's a bit too soon to think about living on the income from its dividend. Dividends per share have grown at approximately 7.6% per year over this time.

The dividend has been growing at a reasonable rate, which we like. We're conscious though that one of the best ways to detect a multi-decade consistent dividend-payer, is to watch a company pay dividends for 20 years - a distinction Budweiser Brewing Company APAC has not achieved yet.

Dividend Growth Potential

Examining whether the dividend is affordable and stable is important. However, it's also important to assess if earnings per share (EPS) are growing. Over the long term, dividends need to grow at or above the rate of inflation, in order to maintain the recipient's purchasing power. Budweiser Brewing Company APAC's earnings per share have fallen -48% over the past year. This is a pretty serious concern, and it would be worth investigating whether something fundamental in the business has changed - or broken. Any one year of performance can be misleading for a variety of reasons, so we wouldn't like to form any strong conclusions based on these numbers alone.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Budweiser Brewing Company APAC's payout ratio is within normal bounds. Second, earnings per share have been in decline, and the dividend history is shorter than we'd like. To conclude, we've spotted a couple of potential concerns with Budweiser Brewing Company APAC that may make it less than ideal candidate for dividend investors.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Budweiser Brewing Company APAC that you should be aware of before investing.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 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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