Midea Real Estate Holding Limited (HKG:3990) has announced that on 15th of July, it will be paying a dividend ofCN¥0.36, which a reduction from last year's comparable dividend. The dividend yield will be in the average range for the industry at 7.1%.
Check out our latest analysis for Midea Real Estate Holding
Midea Real Estate Holding's Earnings Easily Cover The Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Midea Real Estate Holding's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
The next year is set to see EPS grow by 4.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 49% by next year, which is in a pretty sustainable range.
Midea Real Estate Holding's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The dividend has gone from an annual total of CN¥1.08 in 2019 to the most recent total annual payment of CN¥0.332. This works out to a decline of approximately 69% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth Potential Is Shaky
Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Midea Real Estate Holding's EPS has fallen by approximately 27% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
Our Thoughts On Midea Real Estate Holding's Dividend
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 company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
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. Just as an example, we've come across 4 warning signs for Midea Real Estate Holding you should be aware of, and 1 of them is a bit unpleasant. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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