The board of Mandarin Oriental International Limited (SGX:M04) has announced that it will pay a dividend of $0.015 per share on the 16th of October. This means that the annual payment will be 3.1% of the current stock price, which is in line with the average for the industry.

View our latest analysis for Mandarin Oriental International

Mandarin Oriental International's Distributions May Be Difficult To Sustain

We aren't too impressed by dividend yields unless they can be sustained over time. Even while not generating a profit, Mandarin Oriental International is paying out most of its free cash flows as a dividend. Generally paying a dividend without making profits isn't a great idea and we are also worried that there is limited reinvestment into the business.

If the trend of the last few years continues, EPS will grow by 2.2% over the next 12 months. This is the right direction to be moving, but it is probably not enough to achieve profitability. Unfortunately, for the dividend to continue at current levels the company definitely needs to get there sooner rather than later.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.07 in 2014 to the most recent total annual payment of $0.05. This works out to be a decline of approximately 3.3% per year 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.

Mandarin Oriental International May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Earnings has been rising at 2.2% per annum over the last five years, which admittedly is a bit slow. Earnings growth isn't particularly strong, and if the company isn't able to become profitable fairly soon, the dividend could come under pressure.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for Mandarin Oriental International that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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