Miramar Hotel and Investment Company's (HKG:71) Dividend Will Be Reduced To HK$0.26

Miramar Hotel and Investment Company, Limited (HKG:71) has announced it will be reducing its dividend payable on the 8th of July to HK$0.26. The dividend yield of 3.7% is still a nice boost to shareholder returns, despite the cut.

See our latest analysis for Miramar Hotel and Investment Company

Miramar Hotel and Investment Company Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Miramar Hotel and Investment Company's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

EPS is set to fall by 26.4% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 130%, 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 an extended history of paying stable dividends. The dividend has gone from HK$0.38 in 2012 to the most recent annual payment of HK$0.46. This implies that the company grew its distributions at a yearly rate of about 1.9% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 26% over the last five years. 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.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Miramar Hotel and Investment Company you should be aware of, and 1 of them makes us a bit uncomfortable. 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.