Paramount Global (NASDAQ:PARA) has announced that it will pay a dividend of $0.24 per share on the 3rd of January. This means the annual payment is 4.9% of the current stock price, which is above the average for the industry.
Paramount Global's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Paramount Global is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. We think that cash flows should take priority over earnings, so this is definitely a worry for the dividend going forward.
Over the next year, EPS is forecast to fall by 42.4%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 37%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Paramount Global Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2012, the annual payment back then was $0.40, compared to the most recent full-year payment of $0.96. This implies that the company grew its distributions at a yearly rate of about 9.1% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Paramount Global Could Grow Its Dividend
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Paramount Global has been growing its earnings per share at 5.3% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 4 warning signs for Paramount Global (of which 2 make us uncomfortable!) you should know about. Is Paramount Global not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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