Saga Communications, Inc.’s (NASDAQ:SGA) investors are due to receive a payment of $0.25 per share on 12th of December. This means the annual payment is 8.3% of the current stock price, which is above the average for the industry.
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the company wasn’t making enough to cover what it was paying to shareholders. This situation certainly isn’t ideal, and could place significant strain on the balance sheet if it continues.
Earnings per share is forecast to rise by 142.7% over the next year. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.
Check out our latest analysis for Saga Communications
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $2.00 in 2015 to the most recent total annual payment of $1.00. Doing the maths, this is a decline of about 6.7% per year. Declining dividends isn’t generally what we look for as they can indicate that the company is running into some challenges.
Given that the track record hasn’t been stellar, we really want to see earnings per share growing over time. Although it’s important to note that Saga Communications’ earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
In summary, while it is good to see that the dividend hasn’t been cut, we think that at current levels the payment isn’t particularly sustainable. The company seems to be stretching itself a bit to make such big payments, but it doesn’t appear they can be consistent over time. Considering all of these factors, we wouldn’t rely on this dividend if we wanted to live on the income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We’ve spotted 4 warning signs for Saga Communications (of which 1 makes us a bit uncomfortable!) you should know about. Is Saga Communications not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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