Melbourne Enterprises Limited (HKG:158) will pay a dividend of HK$1.80 on the 15th of February. This payment means the dividend yield will be 3.8%, which is below the average for the industry.
See our latest analysis for Melbourne Enterprises
Melbourne Enterprises Might Find It Hard To Continue The Dividend
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Melbourne Enterprises is not generating a profit, and despite this is paying out most of its free cash flow as a dividend. Generally it is unsustainable for a company to be paying a dividend while unprofitable, and with limited reinvestment into the business growth may be slow.
Recent, EPS has fallen by 26.8%, so this could continue over the next year. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was HK$4.60 in 2014, and the most recent fiscal year payment was HK$3.60. This works out to be a decline of approximately 2.4% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Melbourne Enterprises' EPS has fallen by approximately 27% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
Melbourne Enterprises' Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for Melbourne Enterprises that investors should take into consideration. Is Melbourne Enterprises 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.
About SEHK:158
Melbourne Enterprises
An investment holding company, engages in property investment business in Hong Kong.
Flawless balance sheet very low.
