China Leon Inspection Holding (HKG:1586) Will Pay A Smaller Dividend Than Last Year

China Leon Inspection Holding Limited's (HKG:1586) dividend is being reduced to HK$0.018 on the 15th of July. The dividend yield of 2.9% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for China Leon Inspection Holding

China Leon Inspection Holding's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, China Leon Inspection Holding's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share could rise by 2.7% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 43% by next year, which is in a pretty sustainable range.

China Leon Inspection Holding's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. 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$0.026 to HK$0.036. This works out to be a compound annual growth rate (CAGR) of approximately 7.1% 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 May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, China Leon Inspection Holding has only grown its earnings per share at 2.7% per annum over the past five years. While growth may be thin on the ground, China Leon Inspection Holding could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On China Leon Inspection Holding's Dividend

Overall, we think that China Leon Inspection Holding could make a reasonable income stock, even though it did cut the dividend this year. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. 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.

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. 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. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.