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Don't Race Out To Buy GVC Holdings PLC (LON:GVC) Just Because It's Going Ex-Dividend

Simply Wall St

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see GVC Holdings PLC (LON:GVC) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 22nd of August will not receive the dividend, which will be paid on the 26th of September.

GVC Holdings's next dividend payment will be UK£0.18 per share, and in the last 12 months, the company paid a total of UK£0.35 per share. Looking at the last 12 months of distributions, GVC Holdings has a trailing yield of approximately 6.2% on its current stock price of £5.666. If you buy this business for its dividend, you should have an idea of whether GVC Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for GVC Holdings

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. GVC Holdings 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. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If GVC Holdings 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. Over the last year, it paid out more than three-quarters (79%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

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

LSE:GVC Historical Dividend Yield, August 18th 2019

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. GVC Holdings reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. GVC Holdings has delivered an average of 1.3% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Get our latest analysis on GVC Holdings's balance sheet health here.

Final Takeaway

Should investors buy GVC Holdings for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of GVC Holdings.

Wondering what the future holds for GVC Holdings? See what the 12 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

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.