The board of AIA Group Limited (HKG:1299) has announced that it will be paying its dividend of $1.31 on the 12th of June, an increased payment from last year's comparable dividend. Although the dividend is now higher, the yield is only 2.9%, which is below the industry average.

View our latest analysis for AIA Group

AIA Group's Projections Indicate Future Payments May Be Unsustainable

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. But before making this announcement, AIA Group's earnings quite easily covered the dividend. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

The next 12 months is set to see EPS grow by 34.5%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

AIA Group Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.0548 in 2015, and the most recent fiscal year payment was $0.226. This means that it has been growing its distributions at 15% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

AIA Group Could Grow Its Dividend

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that AIA Group has grown earnings per share at 5.3% per year over the past five years. AIA Group definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think AIA Group's payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments AIA Group has been making. This company is not in the top tier of income providing stocks.

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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 15 analysts we track are forecasting for AIA Group for free with public analyst estimates for the company. Is AIA Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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