Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Melcor Developments Ltd. (TSE:MRD) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 13th of September to receive the dividend, which will be paid on the 30th of September.
Melcor Developments's next dividend payment will be CA$0.12 per share, and in the last 12 months, the company paid a total of CA$0.48 per share. Last year's total dividend payments show that Melcor Developments has a trailing yield of 3.9% on the current share price of CA$12.3. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Melcor Developments paying out a modest 33% of its earnings. A useful secondary check can be to evaluate whether Melcor Developments generated enough free cash flow to afford its dividend. Dividends consumed 56% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Melcor Developments's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Melcor Developments's earnings per share have dropped 14% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Melcor Developments has lifted its dividend by approximately 1.3% a year on average.
Is Melcor Developments worth buying for its dividend? Its earnings per share have been declining meaningfully, although it is paying out less than half its income and more than half its cash flow as dividends. Neither payout ratio appears an immediate concern, but we're concerned about the earnings. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Want to learn more about Melcor Developments? Here's a visualisation of its historical rate of revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.