Townsquare Media, Inc. (NYSE:TSQ) will increase its dividend from last year's comparable payment on the 1st of May to $0.20. This will take the dividend yield to an attractive 10.0%, providing a nice boost to shareholder returns.
See our latest analysis for Townsquare Media
Townsquare Media Might Find It Hard To Continue The Dividend
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. While Townsquare Media is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Looking forward, earnings per share is forecast to expand by 70.5% over the next year. It's encouraging to see things moving in the right direction, but this probably won't be enough for the company to turn a profit. The healthy cash flows are definitely a good sign though, so we wouldn't panic just yet, especially with the earnings growing.
Townsquare Media's Dividend Has Lacked Consistency
Townsquare Media has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2018, the annual payment back then was $0.30, compared to the most recent full-year payment of $0.80. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. Townsquare Media has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Company Could Face Some Challenges Growing The Dividend
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Townsquare Media has grown earnings per share at 25% per year over the past five years. While the company is not yet turning a profit, it is growing at a good rate. If profitability can be achieved soon and growth continues apace, this stock could certainly turn into a solid dividend payer.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.
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. Case in point: We've spotted 3 warning signs for Townsquare Media (of which 1 is potentially serious!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
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