Here's What We Like About SKY Network Television's (NZSE:SKT) Upcoming Dividend

It looks like SKY Network Television Limited (NZSE:SKT) is about to go ex-dividend in the next four 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 important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase SKY Network Television's shares on or after the 7th of March, you won't be eligible to receive the dividend, when it is paid on the 22nd of March.

The company's next dividend payment will be NZ$0.0823529 per share, on the back of last year when the company paid a total of NZ$0.18 to shareholders. Looking at the last 12 months of distributions, SKY Network Television has a trailing yield of approximately 6.5% on its current stock price of NZ$2.77. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for SKY Network Television

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see SKY Network Television paying out a modest 43% of its earnings. A useful secondary check can be to evaluate whether SKY Network Television generated enough free cash flow to afford its dividend. Fortunately, it paid out only 47% 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.

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

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see SKY Network Television's earnings have been skyrocketing, up 78% per annum for the past five years. SKY Network Television 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. SKY Network Television's dividend payments per share have declined at 23% per year on average over the past 10 years, which is uninspiring. SKY Network Television is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

To Sum It Up

Has SKY Network Television got what it takes to maintain its dividend payments? It's great that SKY Network Television is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Overall we think this is an attractive combination and worthy of further research.

So while SKY Network Television looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, SKY Network Television has 2 warning signs (and 1 which is significant) we think you should know about.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.