Hotel Royal's (SGX:H12) Upcoming Dividend Will Be Larger Than Last Year's

The board of Hotel Royal Limited (SGX:H12) has announced that the dividend on 5th of June will be increased to SGD0.027, which will be 8.0% higher than last year's payment of SGD0.025 which covered the same period. This takes the annual payment to 1.5% of the current stock price, which unfortunately is below what the industry is paying.

We've discovered 1 warning sign about Hotel Royal. View them for free.

Hotel Royal's Future Dividend Projections Appear Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Hotel Royal's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

If the trend of the last few years continues, EPS will grow by 2.8% over the next 12 months. If the dividend continues on this path, the payout ratio could be 43% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Hotel Royal

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was SGD0.05, compared to the most recent full-year payment of SGD0.027. Doing the maths, this is a decline of about 6.0% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend's Growth Prospects Are Limited

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings has been rising at 2.8% per annum over the last five years, which admittedly is a bit slow. Hotel Royal is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Hotel Royal's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Hotel Royal's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Hotel Royal 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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