Hong Leong Finance (SGX:S41) Is Paying Out A Larger Dividend Than Last Year

Hong Leong Finance Limited (SGX:S41) has announced that it will be increasing its dividend from last year's comparable payment on the 22nd of May to SGD0.10. This will take the dividend yield to an attractive 5.4%, providing a nice boost to shareholder returns.

Hong Leong Finance's Earnings Will Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Hong Leong Finance has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Hong Leong Finance's payout ratio of 59% is a good sign as this means that earnings decently cover dividends.

Looking forward, earnings per share could rise by 0.1% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the future payout ratio could be 61% by next year, which is in a pretty sustainable range.

See our latest analysis for Hong Leong Finance

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was SGD0.12, compared to the most recent full-year payment of SGD0.138. This implies that the company grew its distributions at a yearly rate of about 1.4% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, Hong Leong Finance's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Growth of 0.1% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Hong Leong Finance's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

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. For instance, we've picked out 1 warning sign for Hong Leong Finance that investors should take into consideration. 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.