Looks like Miramar Hotel and Investment Company, Limited (HKG:71) is set to go ex-dividend in the next 3 days. The ex-dividend date is one business day before a company’s record date, which is the date the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any trade in a share must have settled before the record date to be eligible for a dividend. So, you can buy shares of Miramar Hotel and Investment Company before June 9 in order to receive the dividend, which the company will pay on July 8.

The company’s next dividend payment will be HK$0.26 per share, and over the past 12 months the company has paid a total of HK$0.46 per share. Looking at the last 12 months of distributions, Miramar Hotel and Investment Company has a yield of around 3.5% on its current share price of HK$13.2. Dividends contribute greatly to investment returns for long-term holders, but only if the dividend continues to be paid. We need to see if the dividend is covered by earnings and if it increases.

Check out our latest analysis for Miramar Hotel and Investment Company

Dividends are usually paid out of company profits. If a company pays more in dividends than it earns in profits, then the dividend could be unsustainable. Last year, Miramar Hotel and Investment Company paid out 96% of its earnings as dividends, which is above a level we are comfortable with, especially if the company needs to reinvest in its business. That said, even very profitable companies can sometimes not generate enough cash to pay the dividend, so we should always check if the dividend is covered by cash flow. Over the past year, it has paid out 63% of its free cash flow as dividends, within the usual range for most companies.

It’s good to see that even though Miramar Hotel and Investment Company’s dividends weren’t well covered by earnings, they are at least affordable from a cash flow perspective. Still, if this were to happen again, we would wonder if the dividend is sustainable in a downturn.

Click here to see how much profit Miramar Hotel and Investment Company has paid out over the past 12 months.

Have earnings and dividends increased?

Companies with declining profits are tricky from a dividend perspective. If earnings fall enough, the company could be forced to cut its dividend. Readers will then understand why we are concerned that Miramar Hotel and Investment Company’s earnings per share have fallen 26% annually over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid out shrinks.

Most investors primarily gauge a company’s dividend prospects by checking the historical rate of dividend growth. Miramar Hotel and Investment Company has achieved an average annual increase of 1.9% per year in its dividend, based on dividend payouts over the past 10 years.

To sum up

Is Miramar Hotel and Investment Company an attractive dividend stock, or is it better left on the shelf? It’s never fun to see a company’s earnings per share slip. Additionally, Miramar Hotel and Investment Company pays out a fairly high percentage of its profits and more than half of its cash flow, so it is difficult to assess whether the company is reinvesting enough in its business to improve its situation. It’s not that we think Miramar Hotel and Investment Company is a bad company, but these characteristics don’t generally lead to outstanding dividend performance.

However, if you are still interested in Miramar Hotel and Investment Company and want to learn more, it will be very useful for you to know what risks this stock faces. For example, we have identified 3 warning signs for Miramar Hotel and Investment Company (1 cannot be ignored) which you should be aware of.

If you are looking for strong dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.