Melcor Developments (TSE:MRD) Has Announced A Dividend Of CA$0.11

Melcor Developments Ltd. (TSE:MRD) has announced that it will pay a dividend of CA$0.11 per share on the 28th of June. The dividend yield of 3.7% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for Melcor Developments

Melcor Developments' Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Melcor Developments' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS could expand by 9.2% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 20%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from CA$0.50 total annually to CA$0.44. Doing the maths, this is a decline of about 1.3% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Melcor Developments has seen EPS rising for the last five years, at 9.2% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Melcor Developments' prospects of growing its dividend payments in the future.

We Really Like Melcor Developments' Dividend

In general, we don't like to see the dividend being cut, especially when the company has such high potential like Melcor Developments does. By reducing the dividend, pressure will be taken off the balance sheet, which could help the dividend to be consistent in the future. All in all, this checks a lot of the boxes we look for when choosing an income 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. To that end, Melcor Developments has 4 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Melcor Developments 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.