PAX Global Technology (HKG:327) Is Increasing Its Dividend To HK$0.17

PAX Global Technology Limited (HKG:327) will increase its dividend from last year's comparable payment on the 16th of September to HK$0.17. Even though the dividend went up, the yield is still quite low at only 4.2%.

See our latest analysis for PAX Global Technology

PAX Global Technology's Earnings Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last payment, PAX Global Technology was paying only paying out a fraction of earnings, but the payment was a massive 13,143% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Looking forward, earnings per share is forecast to rise by 48.9% over the next year. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

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 annual payment back then was HK$0.04, compared to the most recent full-year payment of HK$0.34. This means that it has been growing its distributions at 36% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. PAX Global Technology has impressed us by growing EPS at 19% per year over the past five years. PAX Global Technology definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On PAX Global Technology's Dividend

In summary, while it's always good to see the dividend being raised, we don't think PAX Global Technology's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think PAX Global Technology is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 1 warning sign for PAX Global 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 yield dividend stocks.

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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.