SKY Network Television Limited (NZSE:SKT) stock is about to trade ex-dividend in 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, SKY Network Television investors that purchase the stock on or after the 9th of March will not receive the dividend, which will be paid on the 24th of March.
The company's next dividend payment will be NZ$0.071 per share, and in the last 12 months, the company paid a total of NZ$0.12 per share. Last year's total dividend payments show that SKY Network Television has a trailing yield of 4.7% on the current share price of NZ$2.54. If you buy this business for its dividend, you should have an idea of whether SKY Network Television's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. That's why it's good to see SKY Network Television paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether SKY Network Television generated enough free cash flow to afford its dividend. Fortunately, it paid out only 39% of its free cash flow in the past year.
It's positive to see that SKY Network Television's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. SKY Network Television's earnings per share have plummeted approximately 33% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. SKY Network Television has seen its dividend decline 25% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
The Bottom Line
Should investors buy SKY Network Television for the upcoming dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it's hard to get excited about SKY Network Television from a dividend perspective.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, SKY Network Television has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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