Lee and Man Paper Manufacturing (HKG:2314) Is Increasing Its Dividend To HK$0.15

The board of Lee and Man Paper Manufacturing Limited (HKG:2314) has announced that it will be increasing its dividend by 25% on the 3rd of September to HK$0.15. This takes the dividend yield from 4.6% to 5.0%, which shareholders will be pleased with.

View our latest analysis for Lee and Man Paper Manufacturing

Lee and Man Paper Manufacturing's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Lee and Man Paper Manufacturing was paying only paying out a fraction of earnings, but the payment was a massive 216% of cash flows. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

The next year is set to see EPS grow by 2.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.

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 dividend has gone from HK$0.14 to HK$0.30. This implies that the company grew its distributions at a yearly rate of about 7.9% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Lee and Man Paper Manufacturing has grown earnings per share at 10% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Lee and Man Paper Manufacturing's payments are rock solid. While Lee and Man Paper Manufacturing is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Lee and Man Paper Manufacturing that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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