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Should You Buy Sun TV Network Limited (NSE:SUNTV) For Its Upcoming Dividend In 3 Days?

Simply Wall St

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sun TV Network Limited (NSE:SUNTV) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 21st of November, you won't be eligible to receive this dividend, when it is paid on the 12th of December.

Sun TV Network's next dividend payment will be ₹2.50 per share, on the back of last year when the company paid a total of ₹12.50 to shareholders. Last year's total dividend payments show that Sun TV Network has a trailing yield of 2.6% on the current share price of ₹489.2. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Sun TV Network

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. Sun TV Network paid out a comfortable 35% of its profit last year. 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. Thankfully its dividend payments took up just 32% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Sun TV Network'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.

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

NSEI:SUNTV Historical Dividend Yield, November 17th 2019

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Sun TV Network's earnings per share have been growing at 13% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, Sun TV Network has increased its dividend at approximately 15% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

The Bottom Line

From a dividend perspective, should investors buy or avoid Sun TV Network? It's great that Sun TV Network is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

Curious what other investors think of Sun TV Network? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.