Melbourne Enterprises' (HKG:158) Shareholders Will Receive A Smaller Dividend Than Last Year

Melbourne Enterprises Limited's (HKG:158) dividend is being reduced from last year's payment covering the same period to HK$1.60 on the 9th of February. This means that the dividend yield is 5.1%, which is a bit low when comparing to other companies in the industry.

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Melbourne Enterprises' Distributions May Be Difficult To Sustain

Even a low dividend yield can be attractive if it is sustained for years on end. Even while not generating a profit, Melbourne Enterprises is paying out most of its free cash flows as a dividend. Generally paying a dividend without making profits isn't a great idea and we are also worried that there is limited reinvestment into the business.

Looking forward, earnings per share could rise by 0.2% over the next year if the trend from the last few years continues. The company seems to be going down the right path, but it will probably take a little bit longer than a year to cross over into profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

Check out 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. Since 2016, the annual payment back then was HK$4.70, compared to the most recent full-year payment of HK$3.20. Doing the maths, this is a decline of about 3.8% per year. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Achieve

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. 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.

Melbourne Enterprises' Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. 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.