Melbourne Enterprises Limited (HKG:158) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 30th of January in order to be eligible for this dividend, which will be paid on the 11th of February.
Melbourne Enterprises's upcoming dividend is HK$2.80 a share, following on from the last 12 months, when the company distributed a total of HK$5.10 per share to shareholders. Based on the last year's worth of payments, Melbourne Enterprises stock has a trailing yield of around 2.5% on the current share price of HK$201. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Melbourne Enterprises has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Melbourne Enterprises reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Melbourne Enterprises didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 83% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Melbourne Enterprises reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Melbourne Enterprises has delivered 4.1% dividend growth per year on average over the past ten years. Earnings per share have been growing much quicker than dividends, potentially because Melbourne Enterprises is keeping back more of its profits to grow the business.
Has Melbourne Enterprises got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Melbourne Enterprises's dividend merits.
Curious about whether Melbourne Enterprises has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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