Does Six Flags Entertainment Corporation (NYSE:SIX) Have A Place In Your Portfolio?
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Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Six Flags Entertainment Corporation (NYSE:SIX) has been paying a dividend to shareholders. Today it yields 5.3%. Should it have a place in your portfolio? Let’s take a look at Six Flags Entertainment in more detail.
See our latest analysis for Six Flags Entertainment
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
Is it the top 25% annual dividend yield payer?
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
Has the amount of dividend per share grown over the past?
Can it afford to pay the current rate of dividends from its earnings?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Six Flags Entertainment fit our criteria?
The company currently pays out 87% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 109% which, assuming the share price stays the same, leads to a dividend yield of 5.6%. However, EPS is forecasted to fall to $2.76 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. This also brings about uncertainty around the sustainability of the payout ratio.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Six Flags Entertainment as a dividend investment. It has only been consistently paying dividends for 8 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Six Flags Entertainment produces a yield of 5.3%, which is high for Hospitality stocks.
Next Steps:
Whilst there are few things you may like about Six Flags Entertainment from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three relevant factors you should further research:
Future Outlook: What are well-informed industry analysts predicting for SIX’s future growth? Take a look at our free research report of analyst consensus for SIX’s outlook.
Valuation: What is SIX worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SIX is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
