Melco Resorts & Entertainment Limited (NASDAQ:MLCO) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 28th of February to receive the dividend, which will be paid on the 12th of March.

Melco Resorts & Entertainment's next dividend payment will be US$0.16 per share, and in the last 12 months, the company paid a total of US$0.66 per share. Last year's total dividend payments show that Melco Resorts & Entertainment has a trailing yield of 3.2% on the current share price of $20.36. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Melco Resorts & Entertainment has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Melco Resorts & Entertainment

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 83% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be concerned if earnings began to decline.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Melco Resorts & Entertainment's earnings per share have fallen at approximately 6.8% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, six years ago, Melco Resorts & Entertainment has lifted its dividend by approximately 4.2% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Melco Resorts & Entertainment is already paying out 83% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

Final Takeaway

Is Melco Resorts & Entertainment an attractive dividend stock, or better left on the shelf? We're not overly enthused to see Melco Resorts & Entertainment's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Curious what other investors think of Melco Resorts & Entertainment? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.