ASM Pacific Technology (HKG:522) Has Announced That It Will Be Increasing Its Dividend To HK$2.60

ASM Pacific Technology Limited (HKG:522) will increase its dividend on the 31st of May to HK$2.60. This makes the dividend yield 4.5%, which is above the industry average.

Check out our latest analysis for ASM Pacific Technology

ASM Pacific Technology's Earnings Easily Cover the Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, ASM Pacific Technology was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is earning enough to make the dividend feasible, but the cash payout ratio of 94% indicates it is more focused on returning cash to shareholders than growing the business.

EPS is set to fall by 9.8% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 60%, which is comfortable for the company to continue in the future.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was HK$5.30 in 2012, and the most recent fiscal year payment was HK$3.90. The dividend has shrunk at around 3.0% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see ASM Pacific Technology has been growing its earnings per share at 16% a year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think ASM Pacific Technology's payments are rock solid. While ASM Pacific Technology is earning enough to cover the dividend, we are generally unimpressed with its future prospects. This company is not in the top tier of income providing stocks.

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. Just as an example, we've come across 2 warning signs for ASM Pacific Technology you should be aware of, and 1 of them makes us a bit uncomfortable. 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.