There's A Lot To Like About Melcor Developments' (TSE:MRD) Upcoming CA$0.11 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Melcor Developments Ltd. (TSE:MRD) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Melcor Developments' shares before the 14th of June in order to be eligible for the dividend, which will be paid on the 28th of June.

The company's next dividend payment will be CA$0.11 per share, on the back of last year when the company paid a total of CA$0.44 to shareholders. Based on the last year's worth of payments, Melcor Developments stock has a trailing yield of around 3.7% on the current share price of CA$11.87. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Melcor Developments

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Melcor Developments has a low and conservative payout ratio of just 25% of its income after tax. 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. Fortunately, it paid out only 33% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Melcor Developments paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Melcor Developments earnings per share are up 4.6% per annum over the last five years. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Melcor Developments's dividend payments per share have declined at 1.3% per year on average over the past 10 years, which is uninspiring.

The Bottom Line

Has Melcor Developments got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Melcor Developments is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Melcor Developments is being conservative with its dividend payouts and could still perform reasonably over the long run. Melcor Developments looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To that end, you should learn about the 4 warning signs we've spotted with Melcor Developments (including 1 which shouldn't be ignored).

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.