Miramar Hotel and Investment Company, Limited's (HKG:71) dividend is being reduced to HK$0.26 on the 8th of July. The yield is still above the industry average at 3.7%.
Miramar Hotel and Investment Company Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 96% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only . Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
If the company can't turn things around, EPS could fall by 26.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 129%, which could put the dividend in jeopardy if the company's earnings don't improve.
Miramar Hotel and Investment Company Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from HK$0.38 to HK$0.46. This means that it has been growing its distributions at 1.9% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
The Dividend Has Limited Growth Potential
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Miramar Hotel and Investment Company's EPS has declined at around 26% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
Our Thoughts On Miramar Hotel and Investment Company's Dividend
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. Overall, we don't think this company has the makings of a good 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Miramar Hotel and Investment Company (of which 1 is a bit unpleasant!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.