Miramar Hotel and Investment Company, Limited (HKG:71) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Miramar Hotel and Investment Company's shares on or after the 9th of June will not receive the dividend, which will be paid on the 8th of July.

The company's next dividend payment will be HK$0.26 per share. Last year, in total, the company distributed HK$0.46 to shareholders. Based on the last year's worth of payments, Miramar Hotel and Investment Company has a trailing yield of 3.5% on the current stock price of HK$13.2. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Miramar Hotel and Investment Company

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Miramar Hotel and Investment Company paid out 96% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Dividends consumed 63% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's good to see that while Miramar Hotel and Investment Company's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

Click here to see how much of its profit Miramar Hotel and Investment Company paid out over the last 12 months.

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 Miramar Hotel and Investment Company's earnings per share have dropped 26% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Miramar Hotel and Investment Company has delivered 1.9% dividend growth per year on average over the past 10 years.

Final Takeaway

Has Miramar Hotel and Investment Company got what it takes to maintain its dividend payments? Earnings per share have been in decline, which is not encouraging. Additionally, Miramar Hotel and Investment Company is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

So if you're still interested in Miramar Hotel and Investment Company despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we've identified 3 warning signs for Miramar Hotel and Investment Company (1 doesn't sit too well with us) you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.