ASM Pacific Technology Limited (HKG:522) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 13th of May will not receive the dividend, which will be paid on the 31st of May.
ASM Pacific Technology's next dividend payment will be HK$2.00 per share, and in the last 12 months, the company paid a total of HK$2.70 per share. Based on the last year's worth of payments, ASM Pacific Technology stock has a trailing yield of around 2.4% on the current share price of HK$112. If you buy this business for its dividend, you should have an idea of whether ASM Pacific Technology's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. ASM Pacific Technology paid out 98% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 26% of its free cash flow in the past year.
It's good to see that while ASM Pacific Technology's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at ASM Pacific Technology, with earnings per share up 3.0% on average over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the ASM Pacific Technology dividends are largely the same as they were 10 years ago.
Is ASM Pacific Technology worth buying for its dividend? ASM Pacific Technology has been steadily growing its earnings per share, and it is paying out just 26% of its cash flow but an uncomfortably high 98% of its income. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of ASM Pacific Technology's dividend merits.
If you're not too concerned about ASM Pacific Technology's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. In terms of investment risks, we've identified 2 warning signs with ASM Pacific Technology and understanding them should be part of your investment process.
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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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