Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Southern Cross Media Group Limited (ASX:SXL) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 2nd of March in order to receive the dividend, which the company will pay on the 16th of April.
Southern Cross Media Group's upcoming dividend is AU$0.028 a share, following on from the last 12 months, when the company distributed a total of AU$0.068 per share to shareholders. Looking at the last 12 months of distributions, Southern Cross Media Group has a trailing yield of approximately 9.1% on its current stock price of A$0.74. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Southern Cross Media Group has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Southern Cross Media Group paid out 107% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. Over the last year, it paid out more than three-quarters (82%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.
It's good to see that while Southern Cross Media Group's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Southern Cross Media Group has grown its earnings rapidly, up 38% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Southern Cross Media Group has delivered 0.5% dividend growth per year on average over the past ten years. Earnings per share have been growing much quicker than dividends, potentially because Southern Cross Media Group is keeping back more of its profits to grow the business.
From a dividend perspective, should investors buy or avoid Southern Cross Media Group? Growing earnings per share and a normal cashflow payout ratio is an ok combination, but we're concerned that the company is paying out such a high percentage of its income as dividends. Overall, it's hard to get excited about Southern Cross Media Group from a dividend perspective.
Wondering what the future holds for Southern Cross Media 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.
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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