Four Seas Mercantile Holdings (HKG:374) Has Affirmed Its Dividend Of HK$0.065

Four Seas Mercantile Holdings Limited's (HKG:374) investors are due to receive a payment of HK$0.065 per share on 25th of September. Including this payment, the dividend yield on the stock will be 3.8%, which is a modest boost for shareholders' returns.

View our latest analysis for Four Seas Mercantile Holdings

Four Seas Mercantile Holdings Is Paying Out More Than It Is Earning

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, the company was paying out 105% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only . 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.

Over the next year, EPS could expand by 2.8% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 103%, which probably can't continue without starting to put some pressure on the balance sheet.

Four Seas Mercantile Holdings Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of HK$0.08 in 2014 to the most recent total annual payment of HK$0.095. This implies that the company grew its distributions at a yearly rate of about 1.7% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Four Seas Mercantile Holdings May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 2.8% per annum over the last five years, which admittedly is a bit slow. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. As they say in finance, 'past performance is not indicative of future performance', but we are not confident a company with limited earnings growth and a high payout ratio will be a star dividend-payer over the next decade.

Our Thoughts On Four Seas Mercantile Holdings' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Four Seas Mercantile Holdings' payments, as there could be some issues with sustaining them into the future. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Four Seas Mercantile Holdings that investors need to be conscious of moving forward. 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.

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