The board of Hock Lian Seng Holdings Limited (SGX:J2T) has announced that it will be increasing its dividend by 20% on the 16th of May to SGD0.018, up from last year's comparable payment of SGD0.015. The payment will take the dividend yield to 4.5%, which is in line with the average for the industry.

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Hock Lian Seng Holdings' Future Dividend Projections Appear Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Hock Lian Seng Holdings was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, earnings per share could rise by 20.5% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 21% by next year, which is in a pretty sustainable range.

Check out our latest analysis for Hock Lian Seng Holdings

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was SGD0.04 in 2015, and the most recent fiscal year payment was SGD0.018. This works out to be a decline of approximately 7.7% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Looks Likely To Grow

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Hock Lian Seng Holdings has impressed us by growing EPS at 21% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Hock Lian Seng Holdings Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Hock Lian Seng Holdings is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

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. As an example, we've identified 1 warning sign for Hock Lian Seng Holdings that you should be aware of before investing. Is Hock Lian Seng Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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