Lee & Man Chemical Company Limited (HKG:746) has announced that it will be increasing its periodic dividend on the 3rd of June to HK$0.15, which will be 7.1% higher than last year's comparable payment amount of HK$0.14. This makes the dividend yield about the same as the industry average at 6.9%.
View our latest analysis for Lee & Man Chemical
Lee & Man Chemical's Payment Could Potentially Have Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Lee & Man Chemical's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Unless the company can turn things around, EPS could fall by 7.2% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 59%, which is definitely feasible to continue.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of HK$0.14 in 2015 to the most recent total annual payment of HK$0.28. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
Dividend Growth May Be Hard To Come By
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Lee & Man Chemical's earnings per share has fallen at approximately 7.2% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
Our Thoughts On Lee & Man Chemical's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Lee & Man Chemical's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Lee & Man Chemical has 2 warning signs (and 1 which is significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of 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.