ASM Pacific Technology’s upcoming dividend is HK$1.30 a share, following on from the last 12 months, when the company distributed a total of HK$2.80 per share to shareholders. Based on the last year’s worth of payments, ASM Pacific Technology stock has a trailing yield of around 3.2% on the current share price of HK$86.2. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! As a result, readers should always check whether ASM Pacific Technology has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. ASM Pacific Technology distributed an unsustainably high 110% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether ASM Pacific Technology generated enough free cash flow to afford its dividend. It paid out 94% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings – expenses don’t pay themselves – so it’s not great to see it paying out so much of its cash flow.
As ASM Pacific Technology’s dividend was not well covered by either earnings or cash flow, we would be concerned that this dividend could be at risk over the long term.
here to see the company’s payout ratio, plus analyst estimates of its future dividends.” data-reactid=”32″>Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we’re glad to see ASM Pacific Technology’s earnings per share have risen 12% per annum over the last five years. It’s not encouraging to see ASM Pacific Technology paying out basically all of its earnings and cashflow to shareholders. We’re glad that earnings are growing rapidly, but we’re wary of the company stretching itself financially.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, ASM Pacific Technology has increased its dividend at approximately 4.0% a year on average. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
From a dividend perspective, should investors buy or avoid ASM Pacific Technology? While it’s nice to see earnings per share growing, we’re curious about how ASM Pacific Technology intends to continue growing, or maintain the dividend in a downturn given that it’s paying out such a high percentage of its earnings and cashflow. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.
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