Are Dividend Investors Mistake with Peak Resorts, Inc. (NASDAQ: SKIS)?

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Dividend-paying stocks like Peak Resorts, Inc. (NASDAQ: SKIS) tend to be popular with investors, and for good reason – some research suggests that a significant amount of all stock returns comes from reinvested dividends. Yet sometimes investors buy a popular dividend stock because of its yield, and then lose money if the company’s dividend falls short of expectations.

In this case, Peak Resorts probably looks attractive to dividend investors, given its 7.2% dividend yield and five-year payment history. It certainly sounds interesting on these metrics – but there’s always more to the story. However, before buying a stock for its dividend, you should always remember Warren Buffett’s two rules: 1) Don’t waste money and 2) Remember rule # 1. We are going to do some checking. below to help you.

Explore this interactive graph for our latest analysis on Peak Resorts!

NasdaqGM: SKIS Historic dividend yield, June 26, 2019

NasdaqGM: SKIS Historic dividend yield, June 26, 2019

Payout ratios

Companies (usually) pay dividends on their profits. If a company pays more than it earns, the dividend may need to be reduced. So we need to get a feel for the sustainability of a company’s dividend relative to its after-tax net profit. Although it has reported a loss in the past 12 months, Peak Resorts is currently paying a dividend. When a company recently reported a loss, we need to check if its cash flow has covered the dividend.

Last year, Peak Resorts paid a dividend while reporting negative free cash flow. While there may be an explanation, we believe this behavior is generally not sustainable.

Is Peak Resorts’ Balance Sheet Risky?

Since Peak Resorts pays a dividend but has reported a loss in the past year, we need to check its balance sheet for signs of financial distress. A rough way to check this is with these two simple ratios: a) net debt divided by EBITDA (earnings before interest, taxes, depreciation, and amortization), and b) net interest coverage. Net debt to EBITDA measures a company’s total debt load relative to its profits (lower = less debt), while net interest coverage measures the company’s ability to pay interest on their debt (higher = greater ability to pay interest charges). With net debt greater than 5 times EBITDA, Peak Resorts could be described as a highly leveraged business. While some companies can handle this level of leverage, we would be concerned about the sustainability of dividends if there was a risk of falling profits.

We calculated its interest coverage by measuring its earnings before interest and taxes (EBIT) and dividing it by the company’s net interest expense. Interest coverage of less than 5 times its interest charges is starting to become a concern for Peak Resorts, and be aware that lenders may place additional restrictions on the business as well. Low interest coverage and high leverage can create problems when the investor needs it the least. We are generally reluctant to rely on dividends from companies with these characteristics.

Remember, you can always get an overview of Peak Resorts’ latest financial situation by checking out our visualization of their financial health.

Dividend volatility

Before buying a stock for income, we want to see if dividends have been stable in the past and if the company has a habit of maintaining its dividend. Peak Resorts has been paying a dividend for the past five years. In the past five years, the first annual payment was US $ 0.55 in 2014, compared to US $ 0.28 last year. Dividend payouts have fallen sharply, down 49% during this period.

We find it difficult to justify buying Peak Resorts for its dividend, given that payouts have declined over the past five years.

Potential for dividend growth

Since dividend payments have shrunk like a glacier in a warming world, we need to check if there are any bright spots on the horizon. Strong earnings per share (EPS) growth could encourage our interest in the company despite fluctuating dividends, which is why it is good to see that Peak Resorts has increased its earnings per share by 21% per year over the past five years. years.

Conclusion

In summary, shareholders should always verify that Peak Resorts’ dividends are affordable, that its dividend payouts are relatively stable, and that it has a decent outlook for its earnings and dividend growth. We are a little uncomfortable that Peak Resorts is paying a dividend while being in deficit, especially since the dividend was not well covered by free cash flow either. We were also happy to see its earnings increase, but it was concerning that the dividend had been reduced at least once in the past. In summary, Peak Resorts has a number of shortcomings that we would be hard pressed to overcome. Things could change, but we think there are probably more attractive alternatives.

Companies with rising profits tend to be the best long-term dividend paying stocks. Find out what the 3 analysts we follow are forecasting for Peak Resorts free with estimates from public analysts for the company.

Looking for more high yield dividend ideas? Try our curated list of dividend-paying stocks with a yield above 3%.

Our goal is to bring you long-term, targeted research analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents.

If you spot an error requiring correction, please contact the publisher at [email protected] 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. Simply Wall St has no position in any of the stocks mentioned. Thanks for the reading.

Carol N. Valencia