AIA Group (HKG:1299) Will Pay A Larger Dividend Than Last Year At $1.31

AIA Group Limited's (HKG:1299) dividend will be increasing from last year's payment of the same period to $1.31 on 12th of June. Despite this raise, the dividend yield of 3.3% is only a modest boost to shareholder returns.

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AIA Group's Future Dividends May Potentially Be At Risk

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, AIA Group was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

Over the next year, EPS is forecast to expand by 33.4%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

View our latest analysis for AIA Group

AIA Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from $0.0639 total annually to $0.225. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

AIA Group Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that AIA Group has grown earnings per share at 5.3% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On AIA Group's Dividend

Overall, we always like to see the dividend being raised, but we don't think AIA Group will make a great income stock. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments AIA Group has been making. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 16 AIA Group analysts we track are forecasting continued growth with our free report on analyst estimates for the company . Is AIA Group not quite the opportunity you were looking for? Why not check out our selection of top 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.