Leon Fuat Berhad (KLSE:LEONFB) Will Pay A Smaller Dividend Than Last Year

Leon Fuat Berhad (KLSE:LEONFB) is reducing its dividend from last year's comparable payment to MYR0.01 on the 22nd of July. The yield is still above the industry average at 4.2%.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Leon Fuat Berhad's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Leon Fuat Berhad's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

If the trend of the last few years continues, EPS will grow by 4.1% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 43% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Leon Fuat Berhad

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of MYR0.02 in 2015 to the most recent total annual payment of MYR0.015. Doing the maths, this is a decline of about 2.8% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth May Be Hard To Achieve

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. However, Leon Fuat Berhad has only grown its earnings per share at 4.1% per annum over the past five years. While EPS growth is quite low, Leon Fuat Berhad has the option to increase the payout ratio to return more cash to shareholders.

Our Thoughts On Leon Fuat Berhad's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Leon Fuat Berhad is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 5 warning signs for Leon Fuat Berhad you should be aware of, and 2 of them are potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.