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The board of Saga Communications, Inc. (NASDAQ:SGA) has announced that it will be paying its dividend of $2.25 on the 21st of October, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 2.9%, which is in line with the average for the industry.
See our latest analysis for Saga Communications
Saga Communications Is Paying Out More Than It Is Earning
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Saga Communications was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
EPS is set to grow by 0.05% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 148%, which is a bit high and could start applying pressure to the balance sheet.
Saga Communications' Dividend Has Lacked Consistency
It's comforting to see that Saga Communications has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2013, the annual payment back then was $1.80, compared to the most recent full-year payment of $0.80. This works out to be a decline of approximately 8.6% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend's Growth Prospects Are Limited
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Unfortunately, Saga Communications' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.
In Summary
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Saga Communications (1 is a bit unpleasant!) that you should be aware of before investing. Is Saga Communications not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.