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

By
Simply Wall St
Published
March 11, 2021
NasdaqGS:NWSA

Readers hoping to buy News Corporation (NASDAQ:NWSA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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 upcoming dividend is US$0.10 a share, following on from the last 12 months, when the company distributed a total of US$0.20 per share 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. If you buy this business for its dividend, you should have an idea of whether News's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for News

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. News's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the 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. What's good is that dividends were well covered by free cash flow, with the company paying out 17% of its cash flow last year.

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

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NasdaqGS:NWSA Historic Dividend March 11th 2021

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. 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.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. News's dividend payments are effectively flat on where they were six years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.

Remember, you can always get a snapshot of News's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

Should investors buy News for the upcoming dividend? It's hard to get used to News paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of News.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with News. Every company has risks, and we've spotted 1 warning sign for News you should know about.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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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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