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Madison Pacific Properties Inc. (TSE:MPC) has announced that it will pay a dividend of CA$0.0525 per share on the 4th of September. This makes the dividend yield 2.0%, which will augment investor returns quite nicely.
See our latest analysis for Madison Pacific Properties
Madison Pacific Properties' Distributions May Be Difficult To Sustain
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Even in the absence of profits, Madison Pacific Properties is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.
Over the next year, EPS might fall by 21.7% based on recent performance. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.
Madison Pacific Properties Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The most recent annual payment of CA$0.105 is about the same as the annual payment 10 years ago. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Dividend Growth Potential Is Shaky
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Earnings per share has been sinking by 22% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
Madison Pacific Properties' Dividend Doesn't Look Sustainable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Madison Pacific Properties' payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Madison Pacific Properties is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 4 warning signs for Madison Pacific Properties that investors should know about before committing capital to this stock. Is Madison Pacific Properties not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.