Legend Holdings Corporation’s (HKG:3396) dividend is being reduced from last year’s payment covering the same period to CN¥0.2174 on the 30th of August. The yield is still above the industry average at 3.0%.
Check out our latest analysis for Legend Holdings
Legend Holdings’ Earnings Easily Cover The Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Legend Holdings was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 12%, so there isn’t too much pressure on the dividend.
Legend Holdings’ Dividend Has Lacked Consistency
Looking back, Legend Holdings’ dividend hasn’t been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from an annual total of CN¥0.22 in 2016 to the most recent total annual payment of CN¥0.20. The dividend has shrunk at around 1.4% a year during that period. Declining dividends isn’t generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth Potential Is Shaky
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Legend Holdings’ EPS has declined at around 26% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. It’s not all bad news though, as the earnings are predicted to rise over the next 12 months – we would just be a bit cautious until this becomes a long term trend.
Our Thoughts On Legend Holdings’ Dividend
Overall, it’s not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn’t been great. Overall, we don’t think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we’ve picked out 3 warning signs for Legend Holdings that investors should know about before committing capital to this stock. Is Legend Holdings not quite the opportunity you were looking for? Why not check out our selection of top 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.
