Miramar Hotel and Investment Company's (HKG:71) Dividend Will Be Reduced To HK$0.20

Miramar Hotel and Investment Company, Limited (HKG:71) is reducing its dividend to HK$0.20 on the 13th of Octoberwhich is 9.1% less than last year. The yield is still above the industry average at 3.4%.

View our latest analysis for Miramar Hotel and Investment Company

Miramar Hotel and Investment Company 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. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

If the company can't turn things around, EPS could fall by 28.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 157%, 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

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from HK$0.37 in 2011 to the most recent annual payment of HK$0.50. This implies that the company grew its distributions at a yearly rate of about 3.1% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Miramar Hotel and Investment Company's earnings per share has shrunk at 29% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Miramar Hotel and Investment Company's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. Dividend payments have been pretty consistent for a while, but we do think the payout ratios are a little bit high. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 doesn't sit too well with us!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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