Emperor Entertainment Hotel's (HKG:296) Dividend Will Be Reduced To HK$0.015

Emperor Entertainment Hotel Limited (HKG:296) has announced it will be reducing its dividend payable on the 14th of September to HK$0.015. The dividend yield of 7.0% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for Emperor Entertainment Hotel

Emperor Entertainment Hotel Might Find It Hard To Continue The Dividend

A big dividend yield for a few years doesn't mean much if it can't be sustained. Even in the absence of profits, Emperor Entertainment Hotel is paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Looking forward, earnings per share could 20.0% over the next year if the trend of the last few years can't be broken. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from HK$0.096 in 2011 to the most recent annual payment of HK$0.03. Dividend payments have fallen sharply, down 69% over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Emperor Entertainment Hotel's earnings per share has shrunk at 20% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Emperor Entertainment Hotel's Dividend Doesn't Look Great

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Emperor Entertainment Hotel has 2 warning signs (and 1 which is a bit concerning) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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