Stock Analysis

PAX Global Technology (HKG:327) Has Announced That It Will Be Increasing Its Dividend To HK$0.21

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The board of PAX Global Technology Limited (HKG:327) has announced that it will be paying its dividend of HK$0.21 on the 21st of September, an increased payment from last year's comparable dividend. This takes the dividend yield to 7.1%, which shareholders will be pleased with.

Check out our latest analysis for PAX Global Technology

PAX Global Technology's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, based ont he last payment, PAX Global Technology was earning enough to cover the dividend pretty comfortably. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

Looking forward, earnings per share is forecast to rise by 31.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 34%, which is in the range that makes us comfortable with the sustainability of the dividend.

SEHK:327 Historic Dividend September 4th 2023

PAX Global Technology Is Still Building Its Track Record

It is great to see that PAX Global Technology has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2015, the dividend has gone from HK$0.04 total annually to HK$0.42. This implies that the company grew its distributions at a yearly rate of about 34% over that duration. PAX Global Technology has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that PAX Global Technology has grown earnings per share at 26% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On PAX Global Technology's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for PAX Global Technology that investors need to be conscious of moving forward. Is PAX Global Technology not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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