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Readers hoping to buy Dover Motorsports, Inc. (NYSE:DVD) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 9th of November to receive the dividend, which will be paid on the 10th of December.
Dover Motorsports's next dividend payment will be US$0.07 per share. Last year, in total, the company distributed US$0.07 to shareholders. Based on the last year's worth of payments, Dover Motorsports stock has a trailing yield of around 4.3% on the current share price of $1.64. If you buy this business for its dividend, you should have an idea of whether Dover Motorsports's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Dover Motorsports paid out a comfortable 30% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 25% of its free cash flow in the past year.
It's positive to see that Dover Motorsports'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?
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. That's why it's comforting to see Dover Motorsports's earnings have been skyrocketing, up 31% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Dover Motorsports has delivered an average of 7.2% per year annual increase in its dividend, based on the past eight years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Should investors buy Dover Motorsports for the upcoming dividend? It's great that Dover Motorsports is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Dover Motorsports looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Dover Motorsports for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 2 warning signs for Dover Motorsports you should be aware of.
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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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