SkyCity Entertainment Group (NZSE:SKC) Will Pay A Dividend Of NZ$0.0618
SkyCity Entertainment Group Limited (NZSE:SKC) has announced that it will pay a dividend of NZ$0.0618 per share on the 21st of March. This means the annual payment is 5.6% of the current stock price, which is above the average for the industry.
View our latest analysis for SkyCity Entertainment Group
SkyCity Entertainment Group's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the dividend made up 1,104% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.
According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 60%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was NZ$0.20 in 2014, and the most recent fiscal year payment was NZ$0.105. Doing the maths, this is a decline of about 6.2% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth Potential Is Shaky
Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. SkyCity Entertainment Group's earnings per share has shrunk at 46% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
SkyCity Entertainment Group's Dividend Doesn't Look Great
In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, the dividend is not reliable enough to make this a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for SkyCity Entertainment Group you should be aware of, and 1 of them is a bit concerning. Is SkyCity Entertainment Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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