Dividend Investors: Don't Be Too Quick To Buy Entain Plc (LON:ENT) For Its Upcoming Dividend
It looks like Entain Plc (LON:ENT) is about to go ex-dividend in the next 3 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Entain's shares before the 20th of August in order to receive the dividend, which the company will pay on the 28th of September.
The company's upcoming dividend is UK£0.103 a share, following on from the last 12 months, when the company distributed a total of UK£0.21 per share to shareholders. Last year's total dividend payments show that Entain has a trailing yield of 3.7% on the current share price of UK£5.572. If you buy this business for its dividend, you should have an idea of whether Entain's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Entain's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Entain 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. Fortunately, it paid out only 42% of its free cash flow in the past year.
Check out our latest analysis for Entain
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Entain 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. Entain has seen its dividend decline 6.5% 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.
Get our latest analysis on Entain's balance sheet health here.
Final Takeaway
Is Entain an attractive dividend stock, or better left on the shelf? It's hard to get used to Entain 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 Entain is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
So if you're still interested in Entain despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 1 warning sign for Entain and you should be aware of it before buying any shares.
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.