AS Merko Ehitus (TAL:MRK1T) Has Affirmed Its Dividend Of €1.00

AS Merko Ehitus (TAL:MRK1T) will pay a dividend of €1.00 on the 17th of June. This makes the dividend yield 6.1%, which will augment investor returns quite nicely.

View our latest analysis for AS Merko Ehitus

AS Merko Ehitus Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, AS Merko Ehitus' earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Over the next year, EPS is forecast to fall by 59.9%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 174%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was €0.091 in 2012, and the most recent fiscal year payment was €1.00. This works out to be a compound annual growth rate (CAGR) of approximately 27% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that AS Merko Ehitus has grown earnings per share at 37% per year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Our Thoughts On AS Merko Ehitus' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about AS Merko Ehitus' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think AS Merko Ehitus is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for AS Merko Ehitus (of which 1 is significant!) you should know about. Is AS Merko Ehitus 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.