Yahoo Finance We Wouldn't Be Too Quick To Buy GVC Holdings PLC (LON:GVC) Before It Goes Ex-Dividend
Readers hoping to buy GVC Holdings PLC (LON:GVC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 12th of March, you won't be eligible to receive this dividend, when it is paid on the 23rd of April.
GVC Holdings's next dividend payment will be UK£0.18 per share. Last year, in total, the company distributed UK£0.35 to shareholders. Calculating the last year's worth of payments shows that GVC Holdings has a trailing yield of 4.6% on the current share price of £7.68. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether GVC Holdings has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for GVC Holdings
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. GVC Holdings reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If GVC Holdings didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year, it paid out more than three-quarters (76%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. GVC Holdings was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the GVC Holdings dividends are largely the same as they were ten years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
Remember, you can always get a snapshot of GVC Holdings's financial health, by checking our visualisation of its financial health, here.
The Bottom Line
From a dividend perspective, should investors buy or avoid GVC Holdings? It's hard to get used to GVC Holdings paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think GVC Holdings is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering GVC Holdings as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for GVC Holdings and you should be aware of these before buying any shares.
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.
