Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Miramar Hotel and Investment Company, Limited (HKG: 71) is set to be ex-dividend in just 3 days. The ex-dividend date is a business day before a company’s registration date, which is the date the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to know, as any purchase of shares made after this date may mean a late settlement which does not appear on the registration date. In other words, investors can buy the shares of Miramar Hotel and Investment Company before September 23 in order to be eligible for the dividend that will be paid on October 13.
The company’s next dividend payment will be HK $ 0.20 per share, and over the past 12 months the company has paid a total of HK $ 0.50 per share. Last year’s total dividend payouts show Miramar Hotel and Investment Company has a sliding 3.7% return on the current share price of HK $ 13.44. If you are buying this company for its dividend, you should know if the dividend from Miramar Hotel and Investment Company is reliable and sustainable. It is therefore necessary to check whether dividend payments are covered and whether profits are growing.
See our latest review for Miramar Hotel and Investment Company
If a company pays more dividends than it has earned, then the dividend could become unsustainable – which is not an ideal situation. Last year, Miramar Hotel and Investment Company paid out 109% of its income as dividends, which is above a level we are comfortable with, especially if the company needs to reinvest in its business. A useful secondary check may be to assess whether Miramar Hotel and Investment Company has generated sufficient free cash flow to pay its dividend. Over the past year, it has paid out 75% of its free cash flow in the form of dividends, within the range typical of most companies.
It’s good to see that while the dividends from Miramar Hotel and Investment Company weren’t covered by earnings, they are at least affordable from a cash flow perspective. If executives were to continue paying more dividends than the company declared profits, we would take this as a warning sign. Extraordinarily few companies are able to persistently pay out a dividend in excess of their profits.
Click here to see how much of its profits Miramar Hotel and Investment Company has paid in the past 12 months.
Have profits and dividends increased?
Companies with declining profits are tricky from a dividend standpoint. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold massively at the same time. With that in mind, we are hampered by Miramar Hotel and Investment Company’s 29% per annum profit decline over the past five years. When earnings per share decrease, the maximum amount of dividends that can be paid also decreases.
Most investors primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Since our data began 10 years ago, Miramar Hotel and Investment Company has increased its dividend by around 3.1% per year on average. It’s intriguing, but the combination of growing dividends despite falling profits can usually only be achieved by paying a higher percentage of the profits. Miramar Hotel and Investment Company is already paying 109% of its profits, and with declining profits, we believe this dividend is unlikely to grow rapidly in the future.
The bottom line
Should investors buy Miramar Hotel and Investment Company for the next dividend? Earnings per share have been declining lately. Worse, Miramar Hotel and Investment Company pays the majority of its profits and more than half of its free cash flow. Positive cash flow is good news, but it’s not a good combination. Given the development of things from a dividend standpoint, we would be inclined to avoid Miramar Hotel and Investment Company.
That said, if you look at this stock without worrying too much about the dividend, you should still be aware of the risks involved with Miramar Hotel and Investment Company. For example, we have identified 2 warning signs for Miramar Hotel and Investment Company (1 makes us a little uncomfortable) you should be aware of this.
However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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