AS Merko Ehitus (TAL:MRK1T) Will Pay A Dividend Of €1.00

AS Merko Ehitus' (TAL:MRK1T) investors are due to receive a payment of €1.00 per share on 16th of June. This means the annual payment is 6.3% of the current stock price, which is above the average for the industry.

See our latest analysis for AS Merko Ehitus

AS Merko Ehitus' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, AS Merko Ehitus was earning enough to cover the dividend, but it wasn't generating any free cash flows. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

Looking forward, earnings per share could rise by 18.7% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 47% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was €0.30 in 2013, and the most recent fiscal year payment was €1.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. AS Merko Ehitus has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. AS Merko Ehitus has seen EPS rising for the last five years, at 19% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

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. While AS Merko Ehitus is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, AS Merko Ehitus has 2 warning signs (and 1 which is significant) we think you should know about. 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.