SKY Network Television Limited (NZSE:SKT) Pays A NZ$0.20 Dividend In Just Two Days
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that SKY Network Television Limited (NZSE:SKT) is about to go ex-dividend in just 2 days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase SKY Network Television's shares on or after the 10th of September, you won't be eligible to receive the dividend, when it is paid on the 25th of September.
The company's next dividend payment will be NZ$0.20 per share. Last year, in total, the company distributed NZ$0.34 to shareholders. Looking at the last 12 months of distributions, SKY Network Television has a trailing yield of approximately 9.2% on its current stock price of NZ$3.68. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether SKY Network Television can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. SKY Network Television paid out more than half (74%) of its earnings last year, which is a regular payout ratio for most companies. 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. Fortunately, it paid out only 46% 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.
View our latest analysis for SKY Network Television
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see SKY Network Television earnings per share are up 7.4% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. SKY Network Television's dividend payments per share have declined at 21% per year on average over the past 10 years, which is uninspiring. SKY Network Television is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Should investors buy SKY Network Television for the upcoming dividend? Earnings per share growth has been modest and SKY Network Television paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. All things considered, we are not particularly enthused 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. Every company has risks, and we've spotted 3 warning signs for SKY Network Television (of which 1 is concerning!) you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.