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We Wouldn't Be Too Quick To Buy News Corporation (NASDAQ:NWSA) Before It Goes Ex-Dividend

·4 min read

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that News Corporation (NASDAQ:NWSA) is about to go ex-dividend in just 4 days. Investors can purchase shares before the 16th of March in order to be eligible for this dividend, which will be paid on the 14th of April.

News's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.20 to shareholders. Based on the last year's worth of payments, News stock has a trailing yield of around 0.8% on the current share price of $25.52. 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 News has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for News

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. News reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If News 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. It paid out 17% of its free cash flow as dividends last year, which is conservatively low.

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?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. News reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the News dividends are largely the same as they were six years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

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

Final Takeaway

Should investors buy News for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that in mind though, if the poor dividend characteristics of News don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 1 warning sign for News you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.

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