ASM Pacific Technology Limited (HKG:522) will increase its dividend on the 31st of May to HK$2.00. Based on the announced payment, the dividend yield for the company will be 2.6%, which is fairly typical for the industry.
ASM Pacific Technology's Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, ASM Pacific Technology's profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
Looking forward, earnings per share is forecast to rise by 102.7% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 51% which would be quite comfortable going to take the dividend forward.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the first annual payment was HK$2.80, compared to the most recent full-year payment of HK$2.70. Dividend payments have shrunk at a rate of less than 1% per annum over this time frame. 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.
ASM Pacific Technology May Have Challenges Growing The Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. ASM Pacific Technology has seen EPS rising for the last five years, at 6.6% per annum. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.
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. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.
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. Taking the debate a bit further, we've identified 2 warning signs for ASM Pacific Technology that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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