Hong Leong Finance's (SGX:S41) Dividend Will Be Increased To SGD0.10

The board of Hong Leong Finance Limited (SGX:S41) has announced that it will be paying its dividend of SGD0.10 on the 22nd of May, an increased payment from last year's comparable dividend. This will take the annual payment to 5.4% of the stock price, which is above what most companies in the industry pay.

Our free stock report includes 1 warning sign investors should be aware of before investing in Hong Leong Finance. Read for free now.

Hong Leong Finance's Payment Expected To Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much.

Hong Leong Finance has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 59%, which means that Hong Leong Finance would be able to pay its last dividend without pressure on the balance sheet.

Over the next year, EPS could expand by 0.1% if recent trends continue. If the dividend continues along recent trends, we estimate the future payout ratio will be 61%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Hong Leong Finance

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was SGD0.12 in 2015, and the most recent fiscal year payment was SGD0.138. This works out to be a compound annual growth rate (CAGR) of approximately 1.4% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Hong Leong Finance hasn't seen much change in its earnings per share over the last five years. Hong Leong Finance is struggling to find viable investments, so it is returning more to shareholders. 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. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

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. For example, we've picked out 1 warning sign for Hong Leong Finance that investors should know about before committing capital to this stock. 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.