Should PAX Global Technology Limited (HKG:327) Be Part Of Your Dividend Portfolio?

Is PAX Global Technology Limited (HKG:327) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

With a 1.7% yield and a six-year payment history, investors probably think PAX Global Technology looks like a reliable dividend stock. While the yield may not look too great, the relatively long payment history is interesting. The company also returned around 0.8% of its market capitalisation to shareholders in the form of stock buybacks over the past year. There are a few simple ways to reduce the risks of buying PAX Global Technology for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on PAX Global Technology!

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. PAX Global Technology paid out 12% of its profit as dividends, over the trailing twelve month period. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.

With a strong net cash balance, PAX Global Technology investors may not have much to worry about in the near term from a dividend perspective.

We update our data on PAX Global Technology every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. PAX Global Technology has been paying a dividend for the past six years. The dividend has been quite stable over the past six years, which is great to see - although we usually like to see the dividend maintained for a decade before giving it full marks, though. During the past six-year period, the first annual payment was HK$0.04 in 2015, compared to HK$0.1 last year. Dividends per share have grown at approximately 23% per year over this time.

The dividend has been growing pretty quickly, which could be enough to get us interested even though the dividend history is relatively short. Further research may be warranted.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. PAX Global Technology has grown its earnings per share at 8.1% per annum over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for PAX Global Technology's prospects of growing its dividend payments in the future.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Firstly, we like that PAX Global Technology has a low and conservative payout ratio. Next, earnings growth has been good, but unfortunately the company has not been paying dividends as long as we'd like. PAX Global Technology fits all of our criteria, and we think it's an attractive dividend idea that would warrant further investigation.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Now, if you want to look closer, it would be worth checking out our free research on PAX Global Technology management tenure, salary, and performance.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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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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