Hock Lian Seng Holdings (SGX:J2T) Will Pay A Larger Dividend Than Last Year At S$0.013

Hock Lian Seng Holdings Limited (SGX:J2T) will increase its dividend on the 20th of May to S$0.013. This will take the annual payment from 4.8% to 4.8% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Hock Lian Seng Holdings

Hock Lian Seng Holdings' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. But before making this announcement, Hock Lian Seng Holdings' earnings quite easily covered the dividend. The business is earning enough to make the dividend feasible, but the cash payout ratio of 84% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Looking forward, EPS could fall by 7.0% if the company can't turn things around from the last few years. 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. The dividend has shrunk at around 4.6% a year during that period. 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 Come By

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. It's not great to see that Hock Lian Seng Holdings' earnings per share has fallen at approximately 7.0% per year over the past five years. 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.

Our Thoughts On Hock Lian Seng Holdings' Dividend

In summary, while it's always good to see the dividend being raised, we don't think Hock Lian Seng Holdings' payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Hock Lian Seng Holdings has been making. This company is not in the top tier of income providing stocks.

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. For example, we've identified 3 warning signs for Hock Lian Seng Holdings (1 is a bit concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.