ADvTECH Limited (JSE:ADH) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of April to ZAR0.37. Based on this payment, the dividend yield for the company will be 3.3%, which is fairly typical for the industry.
See our latest analysis for ADvTECH
ADvTECH's Payment Has Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last dividend was quite easily covered by ADvTECH's earnings. This means that a large portion of its earnings are being retained to grow the business.
If the trend of the last few years continues, EPS will grow by 16.2% over the next 12 months. If the dividend continues on this path, the payout ratio could be 38% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2013, the dividend has gone from ZAR0.24 total annually to ZAR0.60. This implies that the company grew its distributions at a yearly rate of about 9.6% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. ADvTECH might have put its house in order since then, but we remain cautious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see that ADvTECH has been growing its earnings per share at 16% a year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.
We Really Like ADvTECH's Dividend
Overall, a dividend increase is always good, and we think that ADvTECH is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Now, if you want to look closer, it would be worth checking out our free research on ADvTECH management tenure, salary, and performance. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.