Leoch International Technology Limited (HKG:842) Looks Interesting, And It's About To Pay A Dividend
Leoch International Technology Limited (HKG:842) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 28th of May, you won't be eligible to receive this dividend, when it is paid on the 8th of July.
The upcoming dividend for Leoch International Technology will put a total of HK$0.02 per share in shareholders' pockets, up from last year's total dividends of HK$0.018. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Leoch International Technology
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Leoch International Technology paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 3.0% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Leoch International Technology's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see how much of its profit Leoch International Technology paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Leoch International Technology, with earnings per share up 9.9% on average over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Leoch International Technology's dividend payments per share have declined at 11% per year on average over the past nine years, which is uninspiring. Leoch International Technology is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Is Leoch International Technology an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Leoch International Technology is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Leoch International Technology is halfway there. Leoch International Technology looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Leoch International Technology looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To that end, you should learn about the 5 warning signs we've spotted with Leoch International Technology (including 1 which can't be ignored).
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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. Thank you for reading.
