Hong Leong Finance's (SGX:S41) Dividend Will Be SGD0.09

Hong Leong Finance Limited (SGX:S41) will pay a dividend of SGD0.09 on the 24th of May. However, the dividend yield of 5.0% is still a decent boost to shareholder returns.

View our latest analysis for Hong Leong Finance

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

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

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 60% is a good sign as this means that earnings decently cover dividends.

Looking forward, EPS could fall by 4.8% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the future payout ratio could be 65%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was SGD0.12, compared to the most recent full-year payment of SGD0.125. Dividend payments have grown at less than 1% a year over this period. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Hong Leong Finance has seen earnings per share falling at 4.8% per year over the last 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 Hong Leong Finance's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Hong Leong Finance is earning enough to cover the dividend, we are generally unimpressed with its future prospects. 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 instance, we've picked out 1 warning sign for Hong Leong Finance that investors should take into consideration. 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.