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TM Editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

Entravision Communications (EVC) is a media company catering to the Latino market. It has 21 TV stations, 43 radio stations, and other properties.

It’s a $2 stock but its $0.05 per share quarterly dividend means it sports a 10% yield.

Should investors expect such a strong dividend payout to continue?

Let’s dig in and find out.

Entravision generated $48 million in free cash flow last year, down from $67 million in 2022. That’s no bueno. In fact, last year’s free cash flow total was the lowest in four years and this year, it’s projected to drop another $1 million.

Safety Net does not like to see declining cash flow. The model will lower its ratings if cash flow is falling.

The good news is that even though free cash flow fell last year, the company only paid 37% of it in dividends. This year the payout ratio is expected to rise to 43%, which is still low. My threshold is 75%. If a company is paying out less than 75% of its free cash flow in earnings, it means it can afford the dividend.

Entravision cut its dividend in half in 2020 and left it in place until the first quarter of 2023.

So, we have a company that can afford its dividend at the moment, but whose cash flow is in decline and whose management has shown it will slash the dividend at the first sign of trouble.

I don’t believe a dividend cut is imminent, but if Entravision can’t stop the decay of its free cash flow, management will have some tough decisions to make. Based on what it did in 2020, I think I know which way it will lean when it comes to the dividend.

Dividend Safety Rating: D

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