Is WWE's 15% Dividend Safe?

World Wrestling Entertainment, Inc. (WWE - Snapshot Report), the wrestling media and entertainment company, on Feb 23 announced its 24th consecutive dividend payment of 36 cents a share. The dividend is payable to shareholders of record as of Mar 13 and will be paid on Mar 25.

The distribution translates into an eye popping dividend yield of nearly 15%.

With nearly daily announcements of dividend cuts or the complete elimination of dividends by companies across a host of sectors as companies try and conserve cash, the WWE's huge dividend brings up several questions.

1. Is it safe?

2. How are they paying a yield that large?

On Feb 24, the company announced fourth-quarter earnings of 18 cents per share. For the full-year, earnings were 62 cents per share. In 2007, the company earned 72 cents per share.

Currently, the distribution is 36 cents per quarter, to Class A shareholders, or $1.44 per year. It is lower to class B shareholders.

As you can see, the math doesn't add up to pay a dividend that large. The company's cash hoard, which was somewhere close to $300 million to start 2008, has dwindled by nearly $80 million, mainly due to the payment of the dividend. At some point, it becomes unsustainable to pay the dividend, unless profits rise sharply.

Apparently, we're not the only ones wondering how the company can continue to pay out the high dividend.

Dividend Questions During the Conference Call

In the company's fourth quarter conference call, Bobby Melnick of Terrier Partners asked about the dividend and why the company was continuing to pay it.

The company didn't have a clear answer to the question.

"Well it doesn't make sense to you, but I just gave you what our rationale is, our rationale is to manage the company in such a way that over the long-term, we're going to continue to increase the cash flow of the company and the next level of decisions we have to make is how much do we need to invest in the business and how much to return to shareholders," said George Barrios, Chief Financial Officer.

"And our dividend policy currently reflects our best judgment on how to do that," he added.

Is the dividend "safe"?

It appears to be- at least in the short term. The first quarter dividend will be paid in March. The company has given no indication that it will be cutting it. In fact, it recently sent out a press release touting the 15% return.

You may be buying the stock for the dividend right now, but eventually, the cash won't be there to pay it. Buyer beware.

World Wrestling Entertainment is a Zacks #3 Rank (hold) stock. It is also a Zacks Recommendation Hold.

The company recently beat analysts' estimates for the fourth quarter by 1 cent, or 5.88%. WWE is trading at 12.6x forward earnings.

You can read the entire 4th quarter earnings call transcript on SeekingAlpha.

The author of this article owns shares of WWE.

Read the full analyst report on WWE