Emperor Entertainment Hotel Limited (HKG:296) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 10th of December will not receive this dividend, which will be paid on the 20th of December.
Emperor Entertainment Hotel’s next dividend payment will be HK$0.03 per share. Last year, in total, the company distributed HK$0.082 to shareholders. Based on the last year’s worth of payments, Emperor Entertainment Hotel stock has a trailing yield of around 5.2% on the current share price of HK$1.59. If you buy this business for its dividend, you should have an idea of whether Emperor Entertainment Hotel’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Fortunately Emperor Entertainment Hotel’s payout ratio is modest, at just 25% of profit. 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. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.
It’s positive to see that Emperor Entertainment Hotel’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.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we’re concerned to see Emperor Entertainment Hotel’s earnings per share have dropped 6.6% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, Emperor Entertainment Hotel has lifted its dividend by approximately 16% a year on average.
To Sum It Up
Is Emperor Entertainment Hotel worth buying for its dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It’s definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we’re not all that optimistic on its dividend prospects.
Keen to explore more data on Emperor Entertainment Hotel’s financial performance? Check out our visualisation of its historical revenue and earnings growth.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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