Hong Leong Capital Berhad's (KLSE:HLCAP) Dividend Will Be Increased To MYR0.22

The board of Hong Leong Capital Berhad (KLSE:HLCAP) has announced that it will be paying its dividend of MYR0.22 on the 20th of November, an increased payment from last year's comparable dividend. This makes the dividend yield 4.8%, which is above the industry average.

View our latest analysis for Hong Leong Capital Berhad

Hong Leong Capital Berhad's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment was quite easily covered by earnings, but it made up 271% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS could expand by 8.2% if recent trends continue. If the dividend continues on this path, the payout ratio could be 52% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was MYR0.15, compared to the most recent full-year payment of MYR0.22. This implies that the company grew its distributions at a yearly rate of about 3.9% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Hong Leong Capital Berhad Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Hong Leong Capital Berhad has impressed us by growing EPS at 8.2% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Hong Leong Capital Berhad's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Hong Leong Capital Berhad 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. However, there are other things to consider for investors when analysing stock performance. To that end, Hong Leong Capital Berhad has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Hong Leong Capital Berhad not quite the opportunity you were looking for? Why not check out our selection of top 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.