Why You Might Be Interested In AIA Engineering Limited (NSE:AIAENG) For Its Upcoming Dividend
AIA Engineering Limited (NSE:AIAENG) stock is about to trade ex-dividend in 3 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. This means that investors who purchase AIA Engineering's shares on or after the 4th of September will not receive the dividend, which will be paid on the 14th of October.
The company's next dividend payment will be ₹16.00 per share, and in the last 12 months, the company paid a total of ₹16.00 per share. Based on the last year's worth of payments, AIA Engineering stock has a trailing yield of around 0.4% on the current share price of ₹4234.20. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether AIA Engineering has been able to grow its dividends, or if the dividend might be cut.
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. AIA Engineering has a low and conservative payout ratio of just 12% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 28% of its free cash flow as dividends, a comfortable payout level 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.
View our latest analysis for AIA Engineering
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 AIA Engineering's earnings per share have risen 18% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
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, AIA Engineering has lifted its dividend by approximately 7.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
From a dividend perspective, should investors buy or avoid AIA Engineering? It's great that AIA Engineering is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. It's a promising combination that should mark this company worthy of closer attention.
While it's tempting to invest in AIA Engineering for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for AIA Engineering that you should be aware of before investing in their shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.