Is It Worth Considering Hong Leong Industries Berhad (KLSE:HLIND) For Its Upcoming Dividend?

It looks like Hong Leong Industries Berhad (KLSE:HLIND) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 8th of December, you won't be eligible to receive this dividend, when it is paid on the 23rd of December.

Hong Leong Industries Berhad's upcoming dividend is RM0.17 a share, following on from the last 12 months, when the company distributed a total of RM0.42 per share to shareholders. Last year's total dividend payments show that Hong Leong Industries Berhad has a trailing yield of 4.8% on the current share price of MYR8.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Hong Leong Industries Berhad

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 79% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 36% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Hong Leong Industries Berhad paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Hong Leong Industries Berhad's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Hong Leong Industries Berhad has lifted its dividend by approximately 7.7% a year on average.

The Bottom Line

Is Hong Leong Industries Berhad an attractive dividend stock, or better left on the shelf? We're not enthused by the flat earnings per share, although at least the company's payout ratio is within reasonable bounds. Additionally, it paid out a lower percentage of its free cash flow, so at least it generated more cash than it spent on dividends. In summary, it's hard to get excited about Hong Leong Industries Berhad from a dividend perspective.

However if you're still interested in Hong Leong Industries Berhad as a potential investment, you should definitely consider some of the risks involved with Hong Leong Industries Berhad. Every company has risks, and we've spotted 2 warning signs for Hong Leong Industries Berhad you should know about.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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