Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ASMPT Limited (HKG:522) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase ASMPT's shares on or after the 12th of August, you won't be eligible to receive the dividend, when it is paid on the 31st of August.

The company's next dividend payment will be HK$1.30 per share, on the back of last year when the company paid a total of HK$3.90 to shareholders. Calculating the last year's worth of payments shows that ASMPT has a trailing yield of 5.8% on the current share price of HK$66.85. If you buy this business for its dividend, you should have an idea of whether ASMPT's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for ASMPT

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. Fortunately ASMPT's payout ratio is modest, at just 44% of profit. A useful secondary check can be to evaluate whether ASMPT generated enough free cash flow to afford its dividend. Dividends consumed 62% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that ASMPT'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.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see ASMPT's earnings per share have risen 20% per annum over the last five years. ASMPT is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, ASMPT has lifted its dividend by approximately 5.0% a year on average. Earnings per share have been growing much quicker than dividends, potentially because ASMPT is keeping back more of its profits to grow the business.

To Sum It Up

Is ASMPT worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, ASMPT paid out less than half its earnings and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.

So while ASMPT looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For instance, we've identified 2 warning signs for ASMPT (1 is potentially serious) you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.