China Leon Inspection Holding (HKG:1586) Is Due To Pay A Dividend Of HK$0.045

China Leon Inspection Holding Limited (HKG:1586) will pay a dividend of HK$0.045 on the 15th of July. This means the dividend yield will be fairly typical at 2.3%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that China Leon Inspection Holding's stock price has increased by 43% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for China Leon Inspection Holding

China Leon Inspection Holding's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. However, prior to this announcement, China Leon Inspection Holding's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS could expand by 6.5% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.

China Leon Inspection Holding'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 4 years was CN¥0.025 in 2017, and the most recent fiscal year payment was CN¥0.037. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. China Leon Inspection Holding has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

We Could See China Leon Inspection Holding's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that China Leon Inspection Holding has grown earnings per share at 6.5% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Our Thoughts On China Leon Inspection Holding's Dividend

Overall, a consistent dividend is a good thing, and we think that China Leon Inspection Holding has the ability to continue this into the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for China Leon Inspection Holding 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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