ARN Media Limited (ASX:A1N) stock is about to trade ex-dividend in two days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. In other words, investors can purchase ARN Media's shares before the 6th of March in order to be eligible for the dividend, which will be paid on the 28th of March.

The company's next dividend payment will be AU$0.011 per share, and in the last 12 months, the company paid a total of AU$0.023 per share. Based on the last year's worth of payments, ARN Media stock has a trailing yield of around 3.8% on the current share price of AU$0.61. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether ARN Media has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for ARN Media

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. ARN Media lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 41% of its free cash flow as dividends, a comfortable payout level for most companies.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. ARN Media's earnings per share have fallen at approximately 8.1% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. ARN Media has seen its dividend decline 6.7% per annum on average over the past eight years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Is ARN Media worth buying for its dividend? It's not a great combination to see a company with earnings in decline and paying out -26% of its profits, which could imply the dividend may be at risk of being cut in the future. Yet cashflow was much stronger, which makes us wonder if there are some large timing issues in ARN Media's cash flows, or perhaps the company has written down some assets aggressively, reducing its income. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering ARN Media as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for ARN Media that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.