Hock Lian Seng Holdings' (SGX:J2T) Upcoming Dividend Will Be Larger Than Last Year's

Hock Lian Seng Holdings Limited (SGX:J2T) has announced that it will be increasing its dividend on the 20th of May to S$0.013. This takes the dividend yield from 4.5% to 4.5%, which shareholders will be pleased with.

View our latest analysis for Hock Lian Seng Holdings

Hock Lian Seng Holdings' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. But before making this announcement, Hock Lian Seng Holdings' earnings quite easily covered the dividend. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

EPS is set to fall by 7.0% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 21%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The first annual payment during the last 10 years was S$0.02 in 2012, and the most recent fiscal year payment was S$0.013. This works out to be a decline of approximately 4.6% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Hock Lian Seng Holdings' EPS has declined at around 7.0% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Hock Lian Seng Holdings is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Hock Lian Seng Holdings you should be aware of, and 1 of them makes us a bit uncomfortable. 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.