China Lesso Group Holdings (HKG:2128) Will Pay A Dividend Of HK$0.12

The board of China Lesso Group Holdings Limited (HKG:2128) has announced that it will pay a dividend of HK$0.12 per share on the 18th of November. This means that the annual payment will be 3.3% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for China Lesso Group Holdings

China Lesso Group Holdings' Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, China Lesso Group Holdings' dividend was only 23% of earnings, however it was paying out 180% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share is forecast to rise by 13.4% over the next year. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.

China Lesso Group Holdings Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from CN¥0.10 in 2011 to the most recent annual payment of CN¥0.42. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see China Lesso Group Holdings has been growing its earnings per share at 20% a 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.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

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. For example, we've identified 2 warning signs for China Lesso Group Holdings (1 is a bit concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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