Lam Soon (Hong Kong) (HKG:411) Will Pay A Larger Dividend Than Last Year At HK$0.33

The board of Lam Soon (Hong Kong) Limited (HKG:411) has announced that it will be paying its dividend of HK$0.33 on the 4th of December, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 4.2%.

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

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Lam Soon (Hong Kong) was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 0.7% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 39%, which is definitely feasible to continue.

View our latest analysis for Lam Soon (Hong Kong)

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was HK$0.21 in 2015, and the most recent fiscal year payment was HK$0.48. This means that it has been growing its distributions at 8.6% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

Lam Soon (Hong Kong) May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Although it's important to note that Lam Soon (Hong Kong)'s earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

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

In summary, while it's always good to see the dividend being raised, we don't think Lam Soon (Hong Kong)'s payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. 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 unpleasant. If you are a dividend investor, you might also want to look at our curated list of high yield 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.