Red Rock Resorts (NASDAQ:RRR) Is Due To Pay A Dividend Of $0.25
The board of Red Rock Resorts, Inc. (NASDAQ:RRR) has announced that it will pay a dividend on the 29th of September, with investors receiving $0.25 per share. This means the annual payment is 4.4% of the current stock price, which is above the average for the industry.
Check out our latest analysis for Red Rock Resorts
Red Rock Resorts' Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Red Rock Resorts was paying a whopping 395% as a dividend, but this only made up 26% of its overall earnings. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share is forecast to fall by 37.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 94%, which is definitely on the higher side.
Red Rock Resorts' Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2016, the annual payment back then was $0.40, compared to the most recent full-year payment of $2.00. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Has Growth Potential
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Red Rock Resorts has seen EPS rising for the last five years, at 8.9% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Red Rock Resorts' payments, as there could be some issues with sustaining them into the future. While Red Rock Resorts is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Red Rock Resorts has 2 warning signs (and 1 which is concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
