Why Paddy Power's dividend payment is a gamble

Why Paddy Power's dividend payment is a gamble

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Paddy Power Betfair (LON:PPB) is a large cap Casinos & Gaming operator based in Ireland. The Company operates through Online (ex Australia), Online Australia, UK Retail, Irish Retail, and Telephone segments and has a presence in the UK, Australia, and Ireland.

The group pays out an attractive rolling dividend yield of 3.24%, but this is forecast to fall by -4.28% over the next year. A quick look at Paddy Power's results for the year to 31 December 2018 reveal a 7% increase in revenue, although net income fell by the same amount. What's more, the group elected to hold its dividend at £2 per share.

I'd like to know how safe Paddy Power Betfair's dividend is. Dividend cover (earnings per share divided by dividend per share) of two times or above is strong. Anything below one and a half times suggests we need to look a little closer.

Computing Paddy Power Betfair's dividend cover ratio

Poor dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It could also mean that the company is forgoing profitable investment opportunities that could generate future earnings growth. With that in mind, let’s take a look at Paddy Power Betfair dividend cover.

We can get all the information we need to see if Paddy Power Betfair has an adequate level of dividend cover from the group’s StockReport. The group’s FY18 earnings per share were 240p and its FY18 dividend per share was 200p. 

Divide the former by the latter and we get a trailing twelve-month dividend cover for Paddy Power Betfair of just 1.20. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety.


Income investing: what you need to know

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