The board of Leon's Furniture Limited (TSE:LNF) has announced that it will be increasing its dividend by 13% on the 8th of January to CA$0.18, up from last year's comparable payment of CA$0.16. The payment will take the dividend yield to 3.7%, which is in line with the average for the industry.
Leon's Furniture's Earnings Easily Cover The Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Leon's Furniture was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.
Over the next year, EPS could expand by 7.2% if recent trends continue. If the dividend continues on this path, the payout ratio could be 33% by next year, which we think can be pretty sustainable going forward.
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. Since 2013, the annual payment back then was CA$0.40, compared to the most recent full-year payment of CA$0.64. This means that it has been growing its distributions at 4.8% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
We Could See Leon's Furniture's Dividend Growing
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Leon's Furniture has been growing its earnings per share at 7.2% a year over the past five years. Leon's Furniture definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Leon's Furniture that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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