We Wouldn't Be Too Quick To Buy Entravision Communications Corporation (NYSE:EVC) Before It Goes Ex-Dividend

By
Simply Wall St
Published
March 10, 2021
NYSE:EVC

It looks like Entravision Communications Corporation (NYSE:EVC) is about to go ex-dividend in the next four days. Investors can purchase shares before the 15th of March in order to be eligible for this dividend, which will be paid on the 31st of March.

Entravision Communications's next dividend payment will be US$0.025 per share, on the back of last year when the company paid a total of US$0.10 to shareholders. Calculating the last year's worth of payments shows that Entravision Communications has a trailing yield of 2.8% on the current share price of $3.52. If you buy this business for its dividend, you should have an idea of whether Entravision Communications's dividend is reliable and sustainable. As a result, readers should always check whether Entravision Communications has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Entravision Communications

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Entravision Communications lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. 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 Entravision Communications 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. It paid out more than half (65%) of its free cash flow in the past year, which is within an average range for most companies.

Click here to see how much of its profit Entravision Communications paid out over the last 12 months.

historic-dividend
NYSE:EVC Historic Dividend March 10th 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. Entravision Communications was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Entravision Communications's dividend payments per share have declined at 2.3% per year on average over the past eight years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.

Get our latest analysis on Entravision Communications's balance sheet health here.

To Sum It Up

Should investors buy Entravision Communications for the upcoming dividend? It's hard to get used to Entravision Communications paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

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 Entravision Communications. We've identified 2 warning signs with Entravision Communications (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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