Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Sportscene Group Inc. (CVE:SPS.A) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 1st of August to receive the dividend, which will be paid on the 21st of August.
Sportscene Group's next dividend payment will be CA$0.15 per share. Last year, in total, the company distributed CA$0.15 to shareholders. Looking at the last 12 months of distributions, Sportscene Group has a trailing yield of approximately 2.7% on its current stock price of CA$5.5. If you buy this business for its dividend, you should have an idea of whether Sportscene Group's dividend is reliable and sustainable. So we need to investigate whether Sportscene Group can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Sportscene Group paid out a comfortable 42% of its profit last year. 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.
Sportscene Group paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's not encouraging to see that Sportscene Group's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Sportscene Group's dividend payments per share have declined at 6.7% per year on average over the past 10 years, which is uninspiring.
To Sum It Up
Should investors buy Sportscene Group for the upcoming dividend? Earnings per share have been effectively flat over this time, and Sportscene Group's paying out less than half its profits and -60% of its cash flow. Only rarely do we find companies paying out a low percentage of their profits yet a high percentage of their cash flow, so we'd mark this as a concern. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
Want to learn more about Sportscene Group's dividend performance? Check out this visualisation of its historical revenue and earnings growth.
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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.