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Do These 3 Checks Before Buying Village Roadshow Limited (ASX:VRL) For Its Upcoming Dividend

Simply Wall St

Village Roadshow Limited (ASX:VRL) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 13th of September to receive the dividend, which will be paid on the 11th of October.

Village Roadshow's upcoming dividend is AU$0.05 a share, following on from the last 12 months, when the company distributed a total of AU$0.05 per share to shareholders. Last year's total dividend payments show that Village Roadshow has a trailing yield of 1.8% on the current share price of A$2.71. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Village Roadshow

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Village Roadshow 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

ASX:VRL Historical Dividend Yield, September 8th 2019

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Village Roadshow was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last 5 years, making us wonder if the dividend is sustainable at all.

We'd also point out that Village Roadshow issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Village Roadshow has seen its dividend decline 13% 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.

Remember, you can always get a snapshot of Village Roadshow's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Is Village Roadshow worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Wondering what the future holds for Village Roadshow? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

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. Thank you for reading.