Some investors rely on dividends to increase their wealth, and if you are one of those dividend detectors, you might be intrigued to know that Dover Motorsports, Inc. (NYSE: DVD) is set to be ex-dividend in just four days. Investors can buy shares before May 7 in order to be eligible for this dividend, which will be paid on June 10.

Dover Motorsports’ upcoming dividend is US $ 0.04 per share, after the past 12 months, when the company has distributed a total of US $ 0.08 per share to shareholders. Calculating the value of last year’s payouts shows that Dover Motorsports has a 3.6% return on the current share price of $ 2.24. Dividends are an important source of income for many shareholders, but the health of the company is crucial to sustaining these dividends. Accordingly, readers should always check to see if Dover Motorsports has been able to increase its dividends or if the dividend could be reduced.

Check out our latest review for Dover Motorsports

Dividends are typically paid out of business income, so if a business pays more than it earned, its dividend is usually at a higher risk of being reduced. Dover Motorsports paid a comfortable 34% of its profits last year. Still, cash flow is usually more important than profit in assessing dividend sustainability, so we always need to check whether the company has generated enough cash to pay its dividend. In the past year, it has paid out 122% of its free cash flow as dividends, which is uncomfortably high. We’re curious as to why the company paid out more cash than it generated last year, as that may be one of the first signs that a dividend could be unsustainable.

Dover Motorsports has a large net cash position on the balance sheet, which could fund large dividends for a period of time, if the company so chooses. Yet savvy investors know that dividends are best weighed against cash and company-generated profits. Paying cash dividends to the balance sheet is not sustainable in the long term.

Dover Motorsports paid less dividends than profits, but unfortunately it did not generate enough cash to cover the dividend. If this happened repeatedly, it would pose a risk to Dover Motorsports’ ability to maintain its dividend.

Click on here to see how much of its profit Dover Motorsports has paid out in the past 12 months.

historic dividend

Have profits and dividends increased?

Companies with steadily increasing earnings per share are generally the best dividend-paying stocks because they generally find it easier to increase dividends per share. If profits decline and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. With that in mind, we are encouraged by the steady growth of Dover Motorsports, with earnings per share up 7.2% on average over the past five years. Profits have grown at a steady pace, but we’re concerned that dividend payments have consumed most of the company’s cash flow over the past year.

Most investors will primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Over the past nine years, Dover Motorsports has increased its dividend by approximately 8.0% per year on average. We are happy to see dividends increasing along with earnings over a number of years, which may be a sign that the company intends to share the growth with its shareholders.

To summarize

Is Dover Motorsports worth buying for its dividend? Dover Motorsports has seen reasonable earnings per share growth lately and paid less than half of its earnings and 122% of its cash flow over the past year, which is a poor result. Overall, it’s not a bad combination, but we think there is probably a better dividend outlook.

If you want to dig deeper into your research on Dover Motorsports, it helps to know the risks that this company faces. For example – Dover Motorsports has 3 warning signs we think you should be aware of this.

If you are in the dividend stock market, we recommend check out our list of the best dividend-paying stocks with over 2% yield and upcoming dividend.

This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.

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