Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ASM Pacific Technology Limited (HKG:522) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase ASM Pacific Technology's shares before the 12th of May in order to be eligible for the dividend, which will be paid on the 31st of May.

The company's next dividend payment will be HK$2.60 per share, on the back of last year when the company paid a total of HK$3.90 to shareholders. Looking at the last 12 months of distributions, ASM Pacific Technology has a trailing yield of approximately 5.0% on its current stock price of HK$78. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether ASM Pacific Technology can afford its dividend, and if the dividend could grow.

See our latest analysis for ASM Pacific Technology

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. ASM Pacific Technology paid out a comfortable 46% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (62%) of its free cash flow in the past year, which is within an average range for most companies.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see ASM Pacific Technology's earnings per share have risen 18% per annum over the last five years. ASM Pacific Technology has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. ASM Pacific Technology's dividend payments per share have declined at 2.1% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Is ASM Pacific Technology an attractive dividend stock, or better left on the shelf? Earnings per share have grown at a nice rate in recent times and over the last year, ASM Pacific Technology paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about ASM Pacific Technology, and we would prioritise taking a closer look at it.

While it's tempting to invest in ASM Pacific Technology for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for ASM Pacific Technology (1 is significant!) that you ought to be aware of before buying the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.