Four Seas Mercantile Holdings (HKG:374) Is Due To Pay A Dividend Of HK$0.065

The board of Four Seas Mercantile Holdings Limited (HKG:374) has announced that it will pay a dividend on the 26th of September, with investors receiving HK$0.065 per share. This payment means the dividend yield will be 3.5%, which is below the average for the industry.

View our latest analysis for Four Seas Mercantile Holdings

Four Seas Mercantile Holdings Doesn't Earn Enough To Cover Its Payments

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last payment, Four Seas Mercantile Holdings' profits didn't cover the dividend, but the company was generating enough cash instead. 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 24.1% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 381%, which could put the dividend under pressure if earnings don't start to improve.

Four Seas Mercantile Holdings Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was HK$0.07 in 2012, and the most recent fiscal year payment was HK$0.095. This implies that the company grew its distributions at a yearly rate of about 3.1% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Potential Is Shaky

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. Over the past five years, it looks as though Four Seas Mercantile Holdings' EPS has declined at around 24% 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 Four Seas Mercantile Holdings' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. 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. 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. However, there are other things to consider for investors when analysing stock performance. To that end, Four Seas Mercantile Holdings has 4 warning signs (and 1 which is potentially serious) we think you should know about. Is Four Seas Mercantile Holdings not quite the opportunity you were looking for? Why not check out our selection of top 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.