It Might Not Be A Great Idea To Buy Hotel Grand Central Limited (SGX:H18) For Its Next Dividend
It looks like Hotel Grand Central Limited (SGX:H18) is about to go ex-dividend in the next three days. Typically, the ex-dividend date is two business days 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 important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Hotel Grand Central's shares on or after the 14th of May will not receive the dividend, which will be paid on the 29th of May.
The company's next dividend payment will be S$0.015 per share, and in the last 12 months, the company paid a total of S$0.015 per share. Based on the last year's worth of payments, Hotel Grand Central has a trailing yield of 1.9% on the current stock price of S$0.78. If you buy this business for its dividend, you should have an idea of whether Hotel Grand Central's dividend is reliable and sustainable. So we need to investigate whether Hotel Grand Central can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Hotel Grand Central reported a loss last year, so it's not great to see that it has continued paying a dividend. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Hotel Grand Central didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Thankfully its dividend payments took up just 41% of the free cash flow it generated, which is a comfortable payout ratio.
See our latest analysis for Hotel Grand Central
Click here to see how much of its profit Hotel Grand Central paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Hotel Grand Central reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Hotel Grand Central's dividend payments per share have declined at 11% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
We update our analysis on Hotel Grand Central every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
From a dividend perspective, should investors buy or avoid Hotel Grand Central? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering Hotel Grand Central as an investment, you'll find it beneficial to know what risks this stock is facing. For instance, we've identified 2 warning signs for Hotel Grand Central (1 can't be ignored) you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.