Readers hoping to buy 888 Holdings plc (LON:888) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 8th of October will not receive this dividend, which will be paid on the 4th of November.
888 Holdings’s upcoming dividend is UK£0.06 a share, following on from the last 12 months, when the company distributed a total of UK£0.06 per share to shareholders. Calculating the last year’s worth of payments shows that 888 Holdings has a trailing yield of 1.8% on the current share price of £2.64. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
View our latest analysis for 888 Holdings
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That’s why it’s good to see 888 Holdings paying out a modest 34% of its earnings. 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 21% of its free cash flow as dividends last year, which is conservatively low.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we’re encouraged by the steady growth at 888 Holdings, with earnings per share up 2.6% on average over the last five years. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, 888 Holdings has lifted its dividend by approximately 4.5% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Is 888 Holdings an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and 888 Holdings is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and 888 Holdings is halfway there. Overall we think this is an attractive combination and worthy of further research.
While it’s tempting to invest in 888 Holdings for the dividends alone, you should always be mindful of the risks involved. Case in point: We’ve spotted 1 warning sign for 888 Holdings you should be aware of.
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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