Steve Leung Design Group's (HKG:2262) Dividend Will Be Increased To HK$0.05

Steve Leung Design Group Limited's (HKG:2262) dividend will be increasing on the 29th of July to HK$0.05, with investors receiving 67% more than last year. This takes the dividend yield from 4.5% to 7.5%, which shareholders will be pleased with.

Check out our latest analysis for Steve Leung Design Group

Steve Leung Design Group Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 1,165% of what it was earning and 79% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

EPS is set to fall by 48.4% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 6,283%, which could put the dividend under pressure if earnings don't start to improve.

Steve Leung Design Group's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The first annual payment during the last 3 years was HK$0.025 in 2019, and the most recent fiscal year payment was HK$0.03. This works out to be a compound annual growth rate (CAGR) of approximately 6.3% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Over the past five years, it looks as though Steve Leung Design Group's EPS has declined at around 48% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Steve Leung Design Group's payments are rock solid. The payments are bit high to be considered sustainable, and the track record isn't the best. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Steve Leung Design Group has 5 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is Steve Leung Design Group 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.