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It Might Be Better To Avoid Ten Entertainment Group plc's (LON:TEG) Upcoming 1.5% Dividend

Simply Wall St

Ten Entertainment Group plc (LON:TEG) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 21st of November to receive the dividend, which will be paid on the 3rd of January.

Ten Entertainment Group's next dividend payment will be UK£0.037 per share, on the back of last year when the company paid a total of UK£0.11 to shareholders. Based on the last year's worth of payments, Ten Entertainment Group has a trailing yield of 4.5% on the current stock price of £2.55. If you buy this business for its dividend, you should have an idea of whether Ten Entertainment Group's dividend is reliable and sustainable. As a result, readers should always check whether Ten Entertainment Group has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Ten Entertainment Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 82% 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 worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Ten Entertainment Group generated enough free cash flow to afford its dividend. Dividends consumed 67% 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 Ten Entertainment Group'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.

LSE:TEG Historical Dividend Yield, November 16th 2019

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that Ten Entertainment Group's earnings are down 3.8% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past two years, Ten Entertainment Group has increased its dividend at approximately 38% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Ten Entertainment Group is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

To Sum It Up

Should investors buy Ten Entertainment Group for the upcoming dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Wondering what the future holds for Ten Entertainment Group? See what the five analysts we track 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.