Lam Soon (Hong Kong)'s (HKG:411) Upcoming Dividend Will Be Larger Than Last Year's

Lam Soon (Hong Kong) Limited (HKG:411) has announced that it will be increasing its dividend on the 1st of December to HK$0.33. Based on the announced payment, the dividend yield for the company will be 3.3%, which is fairly typical for the industry.

See our latest analysis for Lam Soon (Hong Kong)

Lam Soon (Hong Kong)'s Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Lam Soon (Hong Kong) was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 12.2% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2011, the first annual payment was HK$0.16, compared to the most recent full-year payment of HK$0.48. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. Lam Soon (Hong Kong) has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Lam Soon (Hong Kong) has been growing its earnings per share at 12% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Lam Soon (Hong Kong) Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Lam Soon (Hong Kong) is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Lam Soon (Hong Kong) that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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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.
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