China Lesso Group Holdings' (HKG:2128) Dividend Is Being Reduced To HK$0.26

China Lesso Group Holdings Limited (HKG:2128) has announced it will be reducing its dividend payable on the 22nd of July to HK$0.26. This means that the dividend yield is 4.0%, which is a bit low when comparing to other companies in the industry.

Check out our latest analysis for China Lesso Group Holdings

China Lesso Group Holdings' Earnings Easily Cover the Distributions

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, China Lesso Group Holdings' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 35.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 35% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was CN¥0.097 in 2012, and the most recent fiscal year payment was CN¥0.31. This means that it has been growing its distributions at 12% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

We Could See China Lesso Group Holdings' Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that China Lesso Group Holdings has grown earnings per share at 9.6% per year over the past five years. China Lesso Group Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like China Lesso Group Holdings' Dividend

It is generally not great to see the dividend being cut, but we don't think this should happen much if at all in the future given that China Lesso Group Holdings has the makings of a solid income stock moving forward. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for China Lesso Group Holdings (of which 1 makes us a bit uncomfortable!) you should know about. Is China Lesso Group Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.