China Leon Inspection Holding (HKG:1586) Is Increasing Its Dividend To HK$0.0272

China Leon Inspection Holding Limited (HKG:1586) has announced that it will be increasing its dividend from last year's comparable payment on the 17th of July to HK$0.0272. This will take the dividend yield to an attractive 3.3%, providing a nice boost to shareholder returns.

View our latest analysis for China Leon Inspection Holding

China Leon Inspection Holding's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, China Leon Inspection Holding was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 10.0% over the next 12 months. 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

China Leon Inspection Holding has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2017, the dividend has gone from HK$0.0233 total annually to HK$0.0492. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year 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.

China Leon Inspection Holding Could Grow Its Dividend

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. China Leon Inspection Holding has seen EPS rising for the last five years, at 10.0% per annum. China Leon Inspection Holding 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 Leon Inspection Holding's Dividend

Overall, a dividend increase is always good, and we think that China Leon Inspection Holding is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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