Lee & Man Paper Manufacturing's (HKG:2314) Shareholders Will Receive A Bigger Dividend Than Last Year

Lee & Man Paper Manufacturing Limited's (HKG:2314) dividend will be increasing from last year's payment of the same period to HK$0.061 on 5th of June. This takes the annual payment to 3.7% of the current stock price, which is about average for the industry.

See our latest analysis for Lee & Man Paper Manufacturing

Lee & Man Paper Manufacturing's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, Lee & Man Paper Manufacturing was earning enough to cover the dividend, but free cash flows weren't positive. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

The next year is set to see EPS grow by 76.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 20% 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 2014, the dividend has gone from HK$0.146 total annually to HK$0.086. This works out to be a decline of approximately 5.2% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Lee & Man Paper Manufacturing's earnings per share has shrunk at 26% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Lee & Man Paper Manufacturing's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Lee & Man Paper Manufacturing will make a great income stock. While Lee & Man Paper Manufacturing is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Lee & Man Paper Manufacturing you should be aware of, and 1 of them can't be ignored. 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.