It looks like AAC Technologies Holdings Inc. (HKG:2018) is about to go ex-dividend in the next 2 days. If you purchase the stock on or after the 11th of September, you won't be eligible to receive this dividend, when it is paid on the 27th of September.
AAC Technologies Holdings's next dividend payment will be CN¥0.40 per share, on the back of last year when the company paid a total of CN¥1.29 to shareholders. Looking at the last 12 months of distributions, AAC Technologies Holdings has a trailing yield of approximately 3.5% on its current stock price of HK$40.25. If you buy this business for its dividend, you should have an idea of whether AAC Technologies Holdings's dividend is reliable and sustainable. So we need to investigate whether AAC Technologies Holdings can afford its dividend, and if the dividend could grow.
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. AAC Technologies Holdings paid out 55% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out more than three-quarters (79%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's positive to see that AAC Technologies Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that AAC Technologies Holdings's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. A high payout ratio of 55% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, AAC Technologies Holdings could be signalling that its future growth prospects are thin.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, AAC Technologies Holdings has increased its dividend at approximately 30% a year on average.
To Sum It Up
Should investors buy AAC Technologies Holdings for the upcoming dividend? Earnings per share have barely grown, and although AAC Technologies Holdings paid out over half its earnings and free cash flow last year, the payout ratios are within a normal range for most companies. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
Wondering what the future holds for AAC Technologies Holdings? See what the 28 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.