April 20, 2024

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We Wouldn’t Be Too Quick To Buy Entercom Communications Corp. (NYSE:ETM) Before It Goes Ex-Dividend

It looks like Entercom Communications Corp. (NYSE:ETM) is about to go ex-dividend in the next 2 days. You will need to purchase shares before the 12th of March to receive the dividend, which will be paid on the 27th of March.

Entercom Communications’s upcoming dividend is US$0.02 a share, following on from the last 12 months, when the company distributed a total of US$0.08 per share to shareholders. Looking at the last 12 months of distributions, Entercom Communications has a trailing yield of approximately 2.4% on its current stock price of $3.27. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it’s growing.

See our latest analysis for Entercom 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. Entercom Communications reported a loss last year, so it’s not great to see that it has continued paying a dividend. With the recent loss, it’s important to check if the business generated enough cash to pay its dividend. If Entercom 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 (56%) of its free cash flow in the past year, which is within an average range for most companies.

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

NYSE:ETM Historical Dividend Yield, March 9th 2020

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Entercom Communications 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. Entercom Communications’s dividend payments per share have declined at 28% per year on average over the past four 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.

We update our analysis on Entercom Communications every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Is Entercom Communications worth buying for its dividend? We’re a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Bottom line: Entercom Communications has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

With that being said, if you’re still considering Entercom Communications as an investment, you’ll find it beneficial to know what risks this stock is facing. In terms of investment risks, we’ve identified 2 warning signs with Entercom Communications and understanding them should be part of your investment process.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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