Leong Hup International Berhad (KLSE:LHI) Passed Our Checks, And It's About To Pay A RM00.01 Dividend

Leong Hup International Berhad (KLSE:LHI) stock is about to trade ex-dividend in 3 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Leong Hup International Berhad's shares before the 22nd of January in order to receive the dividend, which the company will pay on the 30th of January.

The company's upcoming dividend is RM00.01 a share, following on from the last 12 months, when the company distributed a total of RM0.02 per share to shareholders. Last year's total dividend payments show that Leong Hup International Berhad has a trailing yield of 2.6% on the current share price of RM00.76. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

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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. Leong Hup International Berhad is paying out just 16% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

View our latest analysis for Leong Hup International Berhad

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Leong Hup International Berhad's earnings have been skyrocketing, up 26% per annum for the past five years. Leong Hup International Berhad looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last six years, Leong Hup International Berhad has lifted its dividend by approximately 3.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Leong Hup International Berhad is keeping back more of its profits to grow the business.

The Bottom Line

Is Leong Hup International Berhad an attractive dividend stock, or better left on the shelf? It's great that Leong Hup International Berhad is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Leong Hup International Berhad looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Leong Hup International Berhad has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 2 warning signs with Leong Hup International Berhad (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

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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.