Melbourne Enterprises (HKG:158) Is Paying Out Less In Dividends Than Last Year

Melbourne Enterprises Limited (HKG:158) is reducing its dividend from last year's comparable payment to HK$1.60 on the 9th of February. This payment takes the dividend yield to 5.0%, which only provides a modest boost to overall returns.

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Melbourne Enterprises Might Find It Hard To Continue The Dividend

Even a low dividend yield can be attractive if it is sustained for years on end. Melbourne Enterprises is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Assuming the trend of the last few years continues, EPS will grow by 0.2% over the next 12 months. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The healthy cash flows are definitely as good sign, though so we wouldn't panic just yet, especially with the earnings growing.

See our latest analysis for Melbourne Enterprises

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. The annual payment during the last 10 years was HK$4.70 in 2015, and the most recent fiscal year payment was HK$3.20. The dividend has shrunk at around 3.8% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Melbourne Enterprises May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Although it's important to note that Melbourne Enterprises' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. With EPS growth hard to come by and the company not turning a profit, we wouldn't be particularly optimistic about the growth prospects for Melbourne Enterprises' dividend in the future.

In Summary

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Melbourne Enterprises is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Melbourne Enterprises that investors should know about before committing capital to this stock. 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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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.