Leader Steel Holdings Berhad's (KLSE:LSTEEL) Upcoming Dividend Will Be Larger Than Last Year's

Leader Steel Holdings Berhad (KLSE:LSTEEL) will increase its dividend from last year's comparable payment on the 8th of August to MYR0.02. This will take the dividend yield to an attractive 2.6%, providing a nice boost to shareholder returns.

View our latest analysis for Leader Steel Holdings Berhad

Leader Steel Holdings Berhad's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Leader Steel Holdings Berhad is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.

If the trend of the last few years continues, EPS will grow by 86.1% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 6.0% by next year, which is in a pretty sustainable range.

Leader Steel Holdings Berhad's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. There hasn't been much of a change in the dividend over the last 3 years. 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.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Leader Steel Holdings Berhad has grown earnings per share at 86% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We should note that Leader Steel Holdings Berhad has issued stock equal to 15% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Leader Steel Holdings Berhad will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Leader Steel Holdings Berhad (of which 1 is significant!) you should know about. Is Leader Steel Holdings 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.

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