Interested In African Media Entertainment's (JSE:AME) Upcoming R03.30 Dividend? You Have Three Days Left

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see African Media Entertainment Limited (JSE:AME) is about to trade ex-dividend in the next three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, African Media Entertainment investors that purchase the stock on or after the 9th of July will not receive the dividend, which will be paid on the 14th of July.

The company's next dividend payment will be R03.30 per share. Last year, in total, the company distributed R4.50 to shareholders. Calculating the last year's worth of payments shows that African Media Entertainment has a trailing yield of 9.3% on the current share price of R048.50. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether African Media Entertainment has been able to grow its dividends, or if the dividend might be cut.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. African Media Entertainment paid out 56% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (70%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that African Media Entertainment's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for African Media Entertainment

Click here to see how much of its profit African Media Entertainment paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see African Media Entertainment's earnings per share have risen 16% per annum over the last five years. African Media Entertainment is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. African Media Entertainment has delivered 2.5% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because African Media Entertainment is keeping back more of its profits to grow the business.

Final Takeaway

Is African Media Entertainment worth buying for its dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that African Media Entertainment is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

In light of that, while African Media Entertainment has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 3 warning signs for African Media Entertainment you should be aware of.

If you're in the market for strong dividend payers, we recommend checking 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.