Amino Technologies (LSE: AMO) has all the hallmarks of a top dividend stock. The company is highly cash generative, has no debt and has a record of returning all extra cash to investors. These are highly desirable qualities for any business, but are especially important for dividend stocks.
Todays trading update from the company for the six months ended 31 May shows just how much of acash cow Amino is. During the period the company generated revenue of approximately 40m, up 21% year-on-year. Net cash the end of the period was 13.1m, up from 3.1m at the end of the same period a year ago and up from 6.2m at the end of November 2016. With a market capitalisation of 142m at the time of writing, this means around 10% of Aminos market value is cash.
Itscash generation and strong sheet gives it room to pursue an aggressive dividend policy. Over the past five years, the payout has risen 100% as earnings per share have grown by 150%. The dividend is covered twice by earnings per share, and this headroom means management has scope to increase the payout this year despite the fact that City analysts are projecting flat earnings growth. Aminos per-share payout is expected to rise by a little more than 10% this year to 6.7p giving a dividend yield of 3.2%. The shares currently trade at a forward P/E of 15.2, so the shares are not particularly cheap although if you strip out the 20p per share in cash, the valuation falls to around 13 times forward earnings.
Acal (LSE: ACL) is another company that has all the hallmarks of a top dividend play. Today the company announced its full-year results for the year ended 31 March 2017 showing strong growth across the board. Earnings per share rose 13% to 19.2p as underlying profit before tax rocketed higher to 17.2m, up from 14.5m in the year-ago period. Revenue grew by 18% or 6% at constant exchange rates. The best performing metric was the groups cash flow. Cash flow from operations increased 66% from 16.3m to 27.1m and the groups cash balance at the end of the period hit 22m, up from 20m at the end of the last fiscal year. This cash balance gives the company more than enough headroom to maintain its current dividend payout of 8.6p per share, which is costing around 5.2m per annum.
Unfortunately, this kind of dividend security does not come cheap. Like Amino, shares in Acal trade at a relatively high forward earnings multiple of 15 times, but City analysts have pencilled-in earnings per share growth of 14% for the year ending 31 March 2018, so the high multiple is to some extent justified by growth. The shares support a dividend yield of 3%, and the payout is expected to grow by around 5% per annum for the foreseeable future. With such a healthy balance sheet I wouldnt rule out special dividends along the way as well.
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