It looks like Fox Corporation (NASDAQ:FOXA) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 3rd of March in order to be eligible for this dividend, which will be paid on the 1st of April.
Fox's next dividend payment will be US$0.23 per share, and in the last 12 months, the company paid a total of US$0.46 per share. Looking at the last 12 months of distributions, Fox has a trailing yield of approximately 1.4% on its current stock price of $32.79. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Fox paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 346% of what it generated in free cash flow, a disturbingly high percentage. It's pretty hard to pay out more than you earn, so we wonder how Fox intends to continue funding this dividend, or if it could be forced to the payment.
Fox paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Fox to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why we're glad to see earnings per share up 16% over the past 12 months. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
We do note though, one year is too short a time to be drawing strong conclusions about a company's future growth prospects.
Given that Fox has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
Is Fox worth buying for its dividend? We like that Fox has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. 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.
Curious what other investors think of Fox? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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