Lam Soon (Hong Kong) (HKG:411) Is Increasing Its Dividend To HK$0.27

Lam Soon (Hong Kong) Limited's (HKG:411) dividend will be increasing from last year's payment of the same period to HK$0.27 on 3rd of December. The payment will take the dividend yield to 4.7%, which is in line with the average for the industry.

Check out our latest analysis for Lam Soon (Hong Kong)

Lam Soon (Hong Kong)'s Future Dividend Projections Appear Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last dividend was quite easily covered by Lam Soon (Hong Kong)'s earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Unless the company can turn things around, EPS could fall by 9.9% over the next year. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 55%, which is definitely feasible to continue.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from HK$0.21 total annually to HK$0.40. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Lam Soon (Hong Kong) might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Come By

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 Lam Soon (Hong Kong)'s EPS has declined at around 9.9% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Our Thoughts On Lam Soon (Hong Kong)'s Dividend

Overall, we always like to see the dividend being raised, but we don't think Lam Soon (Hong Kong) will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Lam Soon (Hong Kong) is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 2 warning signs for Lam Soon (Hong Kong) you should be aware of, and 1 of them is a bit concerning. Is Lam Soon (Hong Kong) 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.