Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Endeavor Group Holdings, Inc. (NYSE:EDR) is about to trade ex-dividend in the next 2 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Endeavor Group Holdings' shares before the 14th of December in order to be eligible for the dividend, which will be paid on the 29th of December.
The company's next dividend payment will be US$0.06 per share. If you buy this business for its dividend, you should have an idea of whether Endeavor Group Holdings's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Endeavor Group Holdings is paying out just 13% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Endeavor Group Holdings generated enough free cash flow to afford its dividend. Fortunately, it paid out only 32% of its free cash flow in the past year.
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?
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 earnings fall far enough, the company could be forced to cut its dividend. That's why we're optimistic about Endeavor Group Holdings's earnings, which have ripped higher, up 139% over the past year. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. Endeavor Group Holdings is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. 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.
One year is a very short time frame in the pantheon of investing, so we wouldn't get too hung up on these numbers.
This is Endeavor Group Holdings's first year of paying a dividend, so it doesn't have much of a history yet to compare to.
The Bottom Line
Has Endeavor Group Holdings got what it takes to maintain its dividend payments? Endeavor Group Holdings has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Endeavor Group Holdings, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Endeavor Group Holdings is facing. Case in point: We've spotted 2 warning signs for Endeavor Group Holdings you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.