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Dividend Investors: Don't Be Too Quick To Buy Saga Communications, Inc. (NASDAQ:SGA) For Its Upcoming Dividend

Simply Wall St

Saga Communications, Inc. (NASDAQ:SGA) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 13th of March to receive the dividend, which will be paid on the 10th of April.

Saga Communications's next dividend payment will be US$0.32 per share, and in the last 12 months, the company paid a total of US$1.45 per share. Based on the last year's worth of payments, Saga Communications stock has a trailing yield of around 4.7% on the current share price of $26.95. If you buy this business for its dividend, you should have an idea of whether Saga Communications's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Saga Communications

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Saga Communications paid out 52% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Saga Communications generated enough free cash flow to afford its dividend. Dividends consumed 53% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Saga Communications'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 how much of its profit Saga Communications paid out over the last 12 months.

NasdaqGM:SGA Historical Dividend Yield, March 8th 2020

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see Saga Communications's earnings per share have been shrinking at 2.5% a year over the previous five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Saga Communications's dividend payments per share have declined at 5.5% per year on average over the past six years, which is uninspiring. 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.

The Bottom Line

Should investors buy Saga Communications for the upcoming dividend? While earnings per share are shrinking, it's encouraging to see that at least Saga Communications's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Although, if you're still interested in Saga Communications and want to know more, you'll find it very useful to know what risks this stock faces. For example - Saga Communications has 2 warning signs we think you should be aware of.

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.