Why It Might Not Make Sense To Buy Warner Music Group Corp. (NASDAQ:WMG) For Its Upcoming Dividend
Warner Music Group Corp. (NASDAQ:WMG) stock is about to trade ex-dividend in three days. This means that investors who purchase shares on or after the 19th of February will not receive the dividend, which will be paid on the 1st of March.
Warner Music Group's upcoming dividend is US$0.12 a share, following on from the last 12 months, when the company distributed a total of US$0.48 per share to shareholders. Based on the last year's worth of payments, Warner Music Group stock has a trailing yield of around 1.3% on the current share price of $37.36. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Warner Music Group
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Warner Music Group reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the past year it paid out 177% of its free cash flow as dividends, which is uncomfortably high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Warner Music Group was unprofitable last year, and sadly its loss per share worsened by 275% on the previous year.
Unfortunately Warner Music Group has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
We update our analysis on Warner Music Group every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Is Warner Music Group an attractive dividend stock, or better left on the shelf? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering Warner Music Group as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 2 warning signs for Warner Music Group that we recommend you consider before investing in the business.
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.
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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