SKY Network Television's (NZSE:SKT) Upcoming Dividend Will Be Larger Than Last Year's

SKY Network Television Limited's (NZSE:SKT) dividend will be increasing from last year's payment of the same period to NZ$0.1588 on 19th of September. This will take the dividend yield to an attractive 7.0%, providing a nice boost to shareholder returns.

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

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 150% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 71%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

The next year is set to see EPS grow by 130.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

See our latest analysis for SKY Network Television

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the dividend has gone from NZ$3.60 total annually to NZ$0.22. Dividend payments have fallen sharply, down 94% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. SKY Network Television has seen EPS rising for the last five years, at 61% per annum. While EPS is growing rapidly, SKY Network Television paid out a very high 150% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Our Thoughts On SKY Network Television's Dividend

In summary, while it's always good to see the dividend being raised, we don't think SKY Network Television's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. 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.

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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.