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

Entravision Communications Corporation (NYSE:EVC) stock is about to trade ex-dividend in 4 days. Ex-dividend means that investors that purchase the stock on or after the 14th of September will not receive this dividend, which will be paid on the 30th of September.

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. Looking at the last 12 months of distributions, Entravision Communications has a trailing yield of approximately 6.8% on its current stock price of $1.46. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Entravision Communications has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Entravision Communications

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. 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. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Entravision Communications paid out more free cash flow than it generated - 124%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Entravision Communications has seen its dividend decline 2.3% per annum on average over the past eight years, which is not great to see. 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.

Final Takeaway

From a dividend perspective, should investors buy or avoid Entravision Communications? First, it's not great to see the company paying a dividend despite being loss-making over the last year. Second, the dividend was not well covered by cash flow." Bottom line: Entravision Communications has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that in mind though, if the poor dividend characteristics of Entravision Communications don't faze you, it's worth being mindful of the risks involved with this business. To help with this, we've discovered 3 warning signs for Entravision Communications (1 is a bit concerning!) that you ought to be aware of before buying the shares.

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.

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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