Are Dividend Investors Getting More Than They Bargained For With Leeport (Holdings) Limited's (HKG:387) Dividend?

Dividend paying stocks like Leeport (Holdings) Limited (HKG:387) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

A high yield and a long history of paying dividends is an appealing combination for Leeport (Holdings). It would not be a surprise to discover that many investors buy it for the dividends. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

Explore this interactive chart for our latest analysis on Leeport (Holdings)!

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. In the last year, Leeport (Holdings) paid out 181% of its profit as dividends. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is definitely a concern.

While the above analysis focuses on dividends relative to a company's earnings, we do note Leeport (Holdings)'s strong net cash position, which will let it pay larger dividends for a time, should it choose.

Remember, you can always get a snapshot of Leeport (Holdings)'s latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Leeport (Holdings) has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut on at least one occasion historically. During the past 10-year period, the first annual payment was HK$0.06 in 2011, compared to HK$0.04 last year. This works out to be a decline of approximately 5.2% per year over that time. Leeport (Holdings)'s dividend hasn't shrunk linearly at 5.2% per annum, but the CAGR is a useful estimate of the historical rate of change.

A shrinking dividend over a 10-year period is not ideal, and we'd be concerned about investing in a dividend stock that lacks a solid record of growing dividends per share.

Dividend Growth Potential

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS are growing. Over the past five years, it looks as though Leeport (Holdings)'s EPS have declined at around 27% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Leeport (Holdings)'s earnings per share, which support the dividend, have been anything but stable.

Conclusion

To summarise, shareholders should always check that Leeport (Holdings)'s dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Leeport (Holdings) is paying out a larger percentage of its profit than we're comfortable with. Earnings per share are down, and Leeport (Holdings)'s dividend has been cut at least once in the past, which is disappointing. In short, we're not keen on Leeport (Holdings) from a dividend perspective. Businesses can change, but we've spotted a few too many concerns with this one to get comfortable.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come accross 4 warning signs for Leeport (Holdings) you should be aware of, and 1 of them is a bit concerning.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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This article by Simply Wall St is general in nature. 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.
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