SKY Network Television (NZSE:SKT) Will Pay A Dividend Of NZ$0.10

SKY Network Television Limited's (NZSE:SKT) investors are due to receive a payment of NZ$0.10 per share on 21st of March. This will take the dividend yield to an attractive 7.5%, providing a nice boost to shareholder returns.

Check out our latest analysis for SKY Network Television

SKY Network Television's Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 146% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 51%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS is forecast to expand by 120.1%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 65% which brings it into quite a comfortable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of NZ$3.60 in 2015 to the most recent total annual payment of NZ$0.19. Dividend payments have fallen sharply, down 95% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

SKY Network Television Might Find It Hard To Grow Its Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. SKY Network Television has impressed us by growing EPS at 90% per year over the past five years. Although earnings per share is up nicely SKY Network Television is paying out 146% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

In Summary

Overall, we always like to see the dividend being raised, but we don't think SKY Network Television will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for SKY Network Television that investors should take into consideration. Is SKY Network Television not quite the opportunity you were looking for? Why not check out 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.