Hong Leong Capital Berhad (KLSE:HLCAP) Has Announced That Its Dividend Will Be Reduced To MYR0.19

Hong Leong Capital Berhad's (KLSE:HLCAP) dividend is being reduced from last year's payment covering the same period to MYR0.19 on the 18th of November. Based on this payment, the dividend yield will be 3.0%, which is lower than the average for the industry.

Our analysis indicates that HLCAP is potentially undervalued!

Hong Leong Capital Berhad's Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Hong Leong Capital Berhad was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

EPS is set to fall by 1.3% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 70%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Hong Leong Capital Berhad's Dividend Has Lacked Consistency

Hong Leong Capital Berhad has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of MYR0.15 in 2014 to the most recent total annual payment of MYR0.19. This implies that the company grew its distributions at a yearly rate of about 3.0% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Hong Leong Capital Berhad hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On Hong Leong Capital Berhad's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. As an example, we've identified 2 warning signs for Hong Leong Capital Berhad that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.