It looks like AMVIG Holdings Limited (HKG:2300) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 2nd of December, you won't be eligible to receive this dividend, when it is paid on the 13th of December.
AMVIG Holdings's next dividend payment will be HK$0.12 per share. Last year, in total, the company distributed HK$0.14 to shareholders. Calculating the last year's worth of payments shows that AMVIG Holdings has a trailing yield of 7.1% on the current share price of HK$2.04. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately AMVIG Holdings's payout ratio is modest, at just 46% of profit. A useful secondary check can be to evaluate whether AMVIG Holdings generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 26% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by AMVIG Holdings's 6.0% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last ten years, AMVIG Holdings has lifted its dividend by approximately 0.9% a year on average.
Is AMVIG Holdings an attractive dividend stock, or better left on the shelf? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Want to learn more about AMVIG Holdings? Here's a visualisation of its historical rate of revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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