Lii Hen Industries Bhd (KLSE:LIIHEN) will pay a dividend of MYR0.015 on the 29th of December. This means that the annual payment will be 5.3% of the current stock price, which is in line with the average for the industry.
See our latest analysis for Lii Hen Industries Bhd
Lii Hen Industries Bhd's Earnings Easily Cover The Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Lii Hen Industries Bhd is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
Looking forward, earnings per share could rise by 3.7% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 68%, which is in the range that makes us comfortable with the sustainability of the dividend.
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. The dividend has gone from an annual total of MYR0.0133 in 2013 to the most recent total annual payment of MYR0.0492. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend's Growth Prospects Are Limited
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. However, Lii Hen Industries Bhd has only grown its earnings per share at 3.7% per annum over the past five years. While EPS growth is quite low, Lii Hen Industries Bhd has the option to increase the payout ratio to return more cash to shareholders.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Lii Hen Industries Bhd is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Lii Hen Industries Bhd has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. 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.