Are Dividend Investors Getting More Than They Bargained For With Entertainment Network (India) Limited's (NSE:ENIL) Dividend?

Is Entertainment Network (India) Limited (NSE:ENIL) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.

Investors might not know much about Entertainment Network (India)'s dividend prospects, even though it has been paying dividends for the last seven years and offers a 0.6% yield. A 0.6% yield is not inspiring, but the longer payment history has some appeal. There are a few simple ways to reduce the risks of buying Entertainment Network (India) for its dividend, and we'll go through these below.

Explore this interactive chart for our latest analysis on Entertainment Network (India)!

Payout ratios

Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Although it reported a loss over the past 12 months, Entertainment Network (India) currently pays a dividend. When a company recently reported a loss, we should investigate if its cash flows covered the dividend.

Entertainment Network (India)'s cash payout ratio last year was 4.5%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout.

While the above analysis focuses on dividends relative to a company's earnings, we do note Entertainment Network (India)'s strong net cash position, which will let it pay larger dividends for a time, should it choose.

Remember, you can always get a snapshot of Entertainment Network (India)'s latest financial position, by checking our visualisation of its financial health.

Dividend Volatility

From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Entertainment Network (India) has been paying a dividend for the past seven years. The dividend has been quite stable over the past seven years, which is great to see - although we usually like to see the dividend maintained for a decade before giving it full marks, though. Its most recent annual dividend was ₹1.0 per share, effectively flat on its first payment seven years ago.

It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. Entertainment Network (India)'s EPS have fallen by approximately 34% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Entertainment Network (India)'s earnings per share, which support the dividend, have been anything but stable.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're not keen on the fact that Entertainment Network (India) paid dividends despite reporting a loss over the past year, although fortunately its dividend was covered by cash flow. Earnings per share are down, and to our mind Entertainment Network (India) has not been paying a dividend long enough to demonstrate its resilience across economic cycles. Overall, Entertainment Network (India) falls short in several key areas here. Unless the investor has strong grounds for an alternative conclusion, we find it hard to get interested in a dividend stock with these characteristics.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Entertainment Network (India) that investors should know about before committing capital to this stock.

We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.

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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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