Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sabre Corporation (NASDAQ:SABR) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 19th of March to receive the dividend, which will be paid on the 30th of March.
Sabre's next dividend payment will be US$0.14 per share, on the back of last year when the company paid a total of US$0.56 to shareholders. Last year's total dividend payments show that Sabre has a trailing yield of 6.7% on the current share price of $8.33. If you buy this business for its dividend, you should have an idea of whether Sabre's dividend is reliable and sustainable. As a result, readers should always check whether Sabre has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year Sabre paid out 96% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while Sabre's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Sabre, with earnings per share up 7.6% on average over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last six years, Sabre has lifted its dividend by approximately 7.6% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
From a dividend perspective, should investors buy or avoid Sabre? Sabre has been steadily growing its earnings per share, and it is paying out just 33% of its cash flow but an uncomfortably high 96% of its income. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Sabre's dividend merits.
If you're not too concerned about Sabre's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Every company has risks, and we've spotted 5 warning signs for Sabre (of which 2 are a bit unpleasant!) you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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 firstname.lastname@example.org. 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.
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