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Why It Might Not Make Sense To Buy eBay Inc. (NASDAQ:EBAY) For Its Upcoming Dividend

·3 min read

eBay Inc. (NASDAQ:EBAY) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. In other words, investors can purchase eBay's shares before the 31st of August in order to be eligible for the dividend, which will be paid on the 16th of September.

The company's next dividend payment will be US$0.22 per share, and in the last 12 months, the company paid a total of US$0.88 per share. Looking at the last 12 months of distributions, eBay has a trailing yield of approximately 2.0% on its current stock price of $44.53. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether eBay can afford its dividend, and if the dividend could grow.

See our latest analysis for eBay

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. eBay paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If eBay didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Over the last year it paid out 51% of its free cash flow as dividends, within the usual range for most companies.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. eBay was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last four years, eBay has lifted its dividend by approximately 12% a year on average.

We update our analysis on eBay every 24 hours, so you can always get the latest insights on its financial health, here.

Final Takeaway

From a dividend perspective, should investors buy or avoid eBay? It's hard to get used to eBay paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think eBay is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

With that being said, if you're still considering eBay as an investment, you'll find it beneficial to know what risks this stock is facing. For example, eBay has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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