Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Event Hospitality & Entertainment Limited (ASX:EVT) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 4th of March will not receive this dividend, which will be paid on the 19th of March.
Event Hospitality & Entertainment's upcoming dividend is AU$0.21 a share, following on from the last 12 months, when the company distributed a total of AU$0.52 per share to shareholders. Last year's total dividend payments show that Event Hospitality & Entertainment has a trailing yield of 4.5% on the current share price of A$11.51. 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 Event Hospitality & Entertainment can afford its dividend, and if the dividend could grow.
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. Its dividend payout ratio is 83% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (66%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Event Hospitality & Entertainment'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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Event Hospitality & Entertainment earnings per share are up 4.8% per annum over the last five years. A high payout ratio of 83% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Event Hospitality & Entertainment could be signalling that its future growth prospects are thin.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Event Hospitality & Entertainment has delivered 5.0% dividend growth per year on average over the past ten years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Should investors buy Event Hospitality & Entertainment for the upcoming dividend? Earnings per share have been growing modestly and Event Hospitality & Entertainment paid out a bit over half of its earnings and free cash flow last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy Event Hospitality & Entertainment today.
Wondering what the future holds for Event Hospitality & Entertainment? See what the five 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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