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 of HK$0.065 per share on the 26th of September. Based on this payment, the dividend yield will be 3.6%, which is fairly typical for the industry.

See our latest analysis for Four Seas Mercantile Holdings

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

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Four Seas Mercantile Holdings' dividend made up quite a large proportion of earnings but only of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, EPS could fall by 34.9% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 140%, which could put the dividend in jeopardy if the company's earnings don't improve.

Four Seas Mercantile Holdings Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the annual payment back then was HK$0.07, compared to the most recent full-year payment of HK$0.095. This works out to be a compound annual growth rate (CAGR) of approximately 3.1% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend Has Limited Growth Potential

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. Earnings per share has been sinking by 35% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Four Seas Mercantile Holdings has 2 warning signs (and 1 which is concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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