Melco Crown Entertainment (ADR) (NASDAQ:MPEL) Dividend an Opportunity or a Trap?
Melco Crown Entertainment (ADR)(NASDAQ:MPEL) has issued the latest dividend in the gaming sector. The Company’s strong balance sheet and coverage in Asian markets gives us the impression that the company can easily provide dividends in the upcoming years. But there are certain things that investors should be aware of about the company’s dividend before they make a decision to buy its shares. Melco Crown Entertainment (ADR)(NASDAQ:MPEL) is not a company that generates revenues from many countries.
Rather 100% of its revenue is generated in Macau and although melca crown will have a joint venture starting in Philippines later this year, this will not bring any change. So if you are looking for a company which has diverse revenue streams then Melco Crown Entertainment (ADR)(NASDAQ:MPEL) is not one of it but still that doesn’t mean that the company is not good. If investors know that the company is generating the major part of its revenue from Macau then the investors are making an informed decision which is what they should do.
Secondly Melco Crown (ADR)(NASDAQ:MPEL) has not been paying consistent dividends throughout the year. In the previous three quarters the dividend that melco crown paid was $0.129, $0.078, and $0.072 per share. It is not the normal policy for a dividend paying company to pay inconsistent dividends to its shareholders but thinking from a business perspective it is a clever way to operate. Management would not be worried to pay dividends each time even if the company is going into losses whereas if Melco Crown is performing good and making large profits then it can pay a good dividend.
This policy of inconsistent dividends of Melco Crown is, again, not something that can be called good or bad rather it’s something that the investors should know about before they make a decision to invest in the company. The dividend yield that was decided upon this quarter might not be the same in the next quarter and investors would need to adjust their expectations accordingly. Melco Crown (ADR)(NASDAQ:MPEL) currently has a dividend yield of 1.1%.
When Melco Crown (ADR)(NASDAQ:MPEL) decided to pay a dividend, its management said that it wanted to give 30% of its annual consolidated net income to its shareholders. When a company is making a dividend plan it should consider its growth prospective alongside the dividends to be paid to its shareholders. The dividend policy of melco crown and its balance sheet with minimal amount of debts shows that Melco Crown (ADR)(NASDAQ:MPEL) has the resources to grow further and simultaneously pay out a dividend.
In last three quarters melco crown has paid $ 155 million in dividends and has produced $515 million profit. Melco Crown has stayed up to its words and has given a 30% payout. But Melco Crown produced a revenue of $1 billion in EBITDA from operations. Thereafter this is clear that Melco Crown can go into an expansion phase and still pay dividends.