Why Mandarin Oriental International (SGX:M04) Might Not Be a Smart Dividend Play

Investors seeking reliable income often turn to high-yield dividend stocks, especially in volatile markets. Mandarin Oriental International Limited (SGX:M04) has been attracting attention with its 2.84% dividend yield, but a closer look reveals several red flags that might make it a risky choice for income-focused investors.



Screening Criteria: What to Look For

When evaluating dividend stocks, it's crucial to consider several key metrics:

1. Dividend Yield: The annual dividend expressed as a percentage of the stock price.
2. Payout Ratio: The proportion of earnings paid out as dividends.
3. Earnings Per Share (EPS): The portion of a company's profit allocated to each outstanding share of common stock.
4. Debt Levels: The amount of debt a company carries relative to its equity.
5. Cash Flow: The amount of cash generated by the company's operations.

Case Study: Mandarin Oriental International Limited (SGX:M04)

Mandarin Oriental International Limited (SGX:M04) has an annual dividend of 0.067 SGD per share, with a yield of 2.84%. The dividend is paid every six months, and the next ex-dividend date is March 20, 2025. However, a deeper dive into the company's financials paints a different picture.

# Dividend Yield and Payout Ratio

The current dividend yield of 2.84% might seem attractive, but the payout ratio is -80%. This means the company is paying out more in dividends than it is earning, which is a significant concern. A negative payout ratio indicates that the dividend payments are not well covered by earnings, raising questions about the sustainability of future dividend payments.

# Earnings Per Share (EPS)

Mandarin Oriental reported a loss per share of US$0.062 for the full year 2024, compared to a loss of US$0.29 in FY 2023. While there has been an improvement in earnings, the fact that the company is still reporting a loss means it does not have sufficient earnings to cover its dividend payments. This negative EPS further validates the concern about the sustainability of the dividend.

# Debt Levels

The debt-to-equity ratio is 0.14, which is relatively low and indicates that the company has a manageable level of debt. However, the debt-to-EBITDA ratio is 3.35, which is higher and suggests that the company's debt levels are significant relative to its earnings before interest, taxes, depreciation, and amortization. This could limit the company's ability to increase dividends or maintain them at current levels if earnings do not improve.

# Cash Flow

The free cash flow (FCF) yield is 2.96%, which is close to the dividend yield of 2.84%. This suggests that the company's cash flow is barely sufficient to cover its dividend payments, leaving little room for error or future increases in dividends.

Red Flags to Watch

1. Negative Earnings: The company's negative EPS indicates that it is not generating sufficient profits to cover its dividend payments.
2. High Payout Ratio: A payout ratio of -80% means the company is paying out more in dividends than it is earning, which is not sustainable.
3. Debt Levels: While the debt-to-equity ratio is manageable, the debt-to-EBITDA ratio is high, suggesting significant debt relative to earnings.
4. Cash Flow: The company's cash flow is barely sufficient to cover its dividend payments, leaving little room for future increases.

Alternatives if Rates Rise

Given the current economic environment, it's essential to consider alternatives that might offer more stability. For example, investing in dividend aristocrats or companies with a history of consistent dividend growth could provide a more reliable income stream. Additionally, diversifying your portfolio across different sectors and yield tiers can help mitigate risk.

Conclusion

While Mandarin Oriental International Limited (SGX:M04) offers an attractive dividend yield, the company's financial health raises significant concerns about the sustainability of its dividend payments. Investors should carefully consider these red flags before adding M04 to their income-focused portfolios. Always remember, high yield doesn't always mean high return—especially when the payout ratio is unsustainable.



In the ever-changing world of investing, it's crucial to stay informed and make data-driven decisions. By understanding the key financial health indicators and considering the sustainability of dividend payments, you can build a more resilient and profitable portfolio.