Stock Analysis

China Leon Inspection Holding (HKG:1586) Is Paying Out Less In Dividends Than Last Year

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China Leon Inspection Holding Limited's (HKG:1586) dividend is being reduced from last year's payment covering the same period to HK$0.0174 on the 15th of July. However, the dividend yield of 3.2% still remains in a typical range for the industry.

Check out our latest analysis for China Leon Inspection Holding

China Leon Inspection Holding's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, China Leon Inspection Holding's earnings easily 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 37.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 25%, which is in the range that makes us comfortable with the sustainability of the dividend.

SEHK:1586 Historic Dividend April 1st 2024

China Leon Inspection Holding's Dividend Has Lacked Consistency

Looking back, China Leon Inspection Holding's dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2017, the annual payment back then was HK$0.0212, compared to the most recent full-year payment of HK$0.0443. This means that it has been growing its distributions at 11% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that China Leon Inspection Holding has been growing its earnings per share at 38% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

China Leon Inspection Holding Looks Like A Great Dividend Stock

Overall, we think that China Leon Inspection Holding could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. Reducing the amount it is paying as a dividend can protect the company's balance sheet, keeping the dividend sustainable for longer. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. Taking the debate a bit further, we've identified 1 warning sign for China Leon Inspection Holding that investors need to be conscious of moving forward. Is China Leon Inspection Holding 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.