Melcor Developments' (TSE:MRD) Dividend Will Be CA$0.11

The board of Melcor Developments Ltd. (TSE:MRD) has announced that it will pay a dividend of CA$0.11 per share on the 31st of March. Based on this payment, the dividend yield on the company's stock will be 3.7%, which is an attractive boost to shareholder returns.

View our latest analysis for Melcor Developments

Melcor Developments' Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 125% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 14%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to fall by 0.5% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could be 40%, which we consider to be quite comfortable, even though the current levels are slightly more elevated.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was CA$0.56, compared to the most recent full-year payment of CA$0.44. Doing the maths, this is a decline of about 2.4% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Melcor Developments May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Melcor Developments hasn't seen much change in its earnings per share over the last five years.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 5 warning signs for Melcor Developments (1 can't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.