Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see PAX Global Technology Limited (HKG:327) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase PAX Global Technology's shares on or after the 26th of August, you won't be eligible to receive the dividend, when it is paid on the 16th of September.
The company's next dividend payment will be HK$0.12 per share, and in the last 12 months, the company paid a total of HK$0.24 per share. Based on the last year's worth of payments, PAX Global Technology has a trailing yield of 2.7% on the current stock price of HK$9.02. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether PAX Global Technology can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PAX Global Technology has a low and conservative payout ratio of just 23% of its income after tax. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 21% of its free cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see PAX Global Technology's earnings per share have risen 11% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last six years, PAX Global Technology has lifted its dividend by approximately 35% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Should investors buy PAX Global Technology for the upcoming dividend? We love that PAX Global Technology is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about PAX Global Technology, and we would prioritise taking a closer look at it.
In light of that, while PAX Global Technology has an appealing dividend, it's worth knowing the risks involved with this stock. For example - PAX Global Technology has 1 warning sign we think you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.
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