U.S. Markets closed
  • S&P 500

    4,008.01
    -15.88 (-0.39%)
     
  • Dow 30

    32,223.42
    +26.76 (+0.08%)
     
  • Nasdaq

    11,662.79
    -142.21 (-1.20%)
     
  • Russell 2000

    1,783.43
    -9.24 (-0.52%)
     
  • Crude Oil

    114.11
    -0.09 (-0.08%)
     
  • Gold

    1,824.20
    +10.20 (+0.56%)
     
  • Silver

    21.64
    +0.09 (+0.41%)
     
  • EUR/USD

    1.0440
    +0.0001 (+0.0104%)
     
  • 10-Yr Bond

    2.8770
    -0.0580 (-1.98%)
     
  • Vix

    27.47
    -1.40 (-4.85%)
     
  • GBP/USD

    1.2325
    +0.0001 (+0.0074%)
     
  • USD/JPY

    129.0020
    -0.0510 (-0.0395%)
     
  • BTC-USD

    30,001.77
    -1,072.70 (-3.45%)
     
  • CMC Crypto 200

    667.04
    +424.36 (+174.87%)
     
  • FTSE 100

    7,464.80
    +46.65 (+0.63%)
     
  • Nikkei 225

    26,547.05
    +119.40 (+0.45%)
     

Is Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) An Attractive Dividend Stock?

  • Oops!
    Something went wrong.
    Please try again later.
·6 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

Today we'll take a closer look at Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) from a dividend investor's perspective. Owning a strong business and reinvesting the dividends is widely seen as an attractive way of growing your wealth. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.

Investors might not know much about Sinclair Broadcast Group's dividend prospects, even though it has been paying dividends for the last nine years and offers a 2.6% yield. While the yield may not look too great, the relatively long payment history is interesting. The company also returned around 11% of its market capitalisation to shareholders in the form of stock buybacks over the past year. Some simple analysis can offer a lot of insights when buying a company for its dividend, and we'll go through this below.

Click the interactive chart for our full dividend analysis

NasdaqGS:SBGI Historical Dividend Yield, February 6th 2020
NasdaqGS:SBGI Historical Dividend Yield, February 6th 2020

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Sinclair Broadcast Group paid out 36% of its profit as dividends, over the trailing twelve month period. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. Besides, if reinvestment opportunities dry up, the company has room to increase the dividend.

In addition to comparing dividends against profits, we should inspect whether the company generated enough cash to pay its dividend. Sinclair Broadcast Group paid out 12% of its free cash flow as dividends last year, which is conservative and suggests the dividend is sustainable. 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.

Is Sinclair Broadcast Group's Balance Sheet Risky?

As Sinclair Broadcast Group has a meaningful amount of debt, we need to check its balance sheet to see if the company might have debt risks. A rough way to check this is with these two simple ratios: a) net debt divided by EBITDA (earnings before interest, tax, depreciation and amortisation), and b) net interest cover. Net debt to EBITDA measures total debt load relative to company earnings (lower = less debt), while net interest cover measures the ability to pay interest on the debt (higher = greater ability to pay interest costs). Sinclair Broadcast Group has net debt of 15.27 times its EBITDA, which we think carries substantial risk if earnings aren't sustainable.

We calculated its interest cover by measuring its earnings before interest and tax (EBIT), and dividing this by the company's net interest expense. Interest cover of 1.84 times its interest expense is starting to become a concern for Sinclair Broadcast Group, and be aware that lenders may place additional restrictions on the company as well. High debt and weak interest cover are not a great combo, and we would be cautious of relying on this company's dividend while these metrics persist.

We update our data on Sinclair Broadcast Group every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. The first recorded dividend for Sinclair Broadcast Group, in the last decade, was nine years ago. The dividend has been quite stable over the past nine years, which is great to see - although we usually like to see the dividend maintained for a decade before giving it full marks, though. During the past nine-year period, the first annual payment was US$0.48 in 2011, compared to US$0.80 last year. Dividends per share have grown at approximately 5.8% per year over this time.

Sinclair Broadcast Group has been growing its dividend at a decent rate, and the payments have been stable despite the short payment history. This is a positive start.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Sinclair Broadcast Group has grown its earnings per share at 28% per annum over the past five years. Earnings per share have rocketed in recent times, and we like that the company is retaining more than half of its earnings to reinvest. However, always remember that very few companies can grow at double digit rates forever.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. First, we like that the company's dividend payments appear well covered, although the retained capital also needs to be effectively reinvested. Next, earnings growth has been good, but unfortunately the company has not been paying dividends as long as we'd like. Sinclair Broadcast Group performs highly under this analysis, although it falls slightly short of our exacting standards. At the right valuation, it could be a solid dividend prospect.

Earnings growth generally bodes well for the future value of company dividend payments. See if the 7 Sinclair Broadcast Group analysts we track are forecasting continued growth with our free report on analyst estimates for the company.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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.