Readers hoping to buy Lii Hen Industries Bhd (KLSE:LIIHEN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 8th of March to receive the dividend, which will be paid on the 25th of March.
Lii Hen Industries Bhd's upcoming dividend is RM0.04 a share, following on from the last 12 months, when the company distributed a total of RM0.14 per share to shareholders. Looking at the last 12 months of distributions, Lii Hen Industries Bhd has a trailing yield of approximately 3.9% on its current stock price of MYR3.61. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Lii Hen Industries Bhd has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Lii Hen Industries Bhd paid out a comfortable 33% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 157% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Lii Hen Industries Bhd does have a large net cash position on the balance sheet, which could fund large dividends for a time, if the company so chose. Still, smart investors know that it is better to assess dividends relative to the cash and profit generated by the business. Paying dividends out of cash on the balance sheet is not long-term sustainable.
Lii Hen Industries Bhd paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Lii Hen Industries Bhd to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Lii Hen Industries Bhd earnings per share are up 5.6% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Lii Hen Industries Bhd has delivered 17% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Lii Hen Industries Bhd worth buying for its dividend? Lii Hen Industries Bhd has seen its earnings per share grow steadily and paid out less than half its profit over the last year. Unfortunately, its dividend was not well covered by free cash flow. In summary, it's hard to get excited about Lii Hen Industries Bhd from a dividend perspective.
So if you want to do more digging on Lii Hen Industries Bhd, you'll find it worthwhile knowing the risks that this stock faces. To that end, you should learn about the 3 warning signs we've spotted with Lii Hen Industries Bhd (including 1 which is a bit concerning).
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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