InterContinental Hotels Group PLC (LON:IHG) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 29th of August in order to be eligible for this dividend, which will be paid on the 3rd of October.
InterContinental Hotels Group's next dividend payment will be US$0.40 per share, and in the last 12 months, the company paid a total of US$1.20 per share. Based on the last year's worth of payments, InterContinental Hotels Group has a trailing yield of 1.9% on the current stock price of £51.09. If you buy this business for its dividend, you should have an idea of whether InterContinental Hotels Group's dividend is reliable and sustainable. As a result, readers should always check whether InterContinental Hotels Group has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. InterContinental Hotels Group paid out more than half (52%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether InterContinental Hotels Group generated enough free cash flow to afford its dividend. Over the last year it paid out 54% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that InterContinental Hotels Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at InterContinental Hotels Group, with earnings per share up 3.0% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, InterContinental Hotels Group has increased its dividend at approximately 7.9% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has InterContinental Hotels Group got what it takes to maintain its dividend payments? Earnings per share have been growing modestly and InterContinental Hotels Group paid out a bit over half of its earnings and free cash flow last year. All things considered, we are not particularly enthused about InterContinental Hotels Group from a dividend perspective.
Ever wonder what the future holds for InterContinental Hotels Group? See what the 18 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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