International Game Technology PLC (NYSE:IGT) stock is set to trade ex-dividend in 4 days. The ex-dividend date is one business day before the record date, which is the latest date by which shareholders must be present on the books of the company to be eligible for payment of a dividend. It is important to know the ex-dividend date, because any trade in the stock must have settled by the record date. In other words, investors can buy shares of International Game Technology before March 14 in order to be eligible for the dividend, which will be paid on March 29.
The company’s next dividend is $0.20 per share, following the past 12 months, when the company distributed a total of $0.80 per share to shareholders. Based on last year’s payouts, International Game Technology has a 3.4% yield on the current stock price of $23.51. We love to see companies pay out a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden hen! We therefore need to check whether dividend payments are covered and whether profits are increasing.
See our latest analysis for International Game Technology
Dividends are usually paid out of company profits, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. International Game Technology pays out an acceptable 63% of its profits, a common payout level for most companies. Still, cash flow is usually more important than earnings in assessing the sustainability of dividends, so we always need to check whether the company has generated enough cash to pay its dividend. It paid out 5.5% of its free cash flow as dividends last year, which is relatively low.
It is positive to see that International Game Technology’s dividend is covered by both earnings and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio generally suggests a higher large margin of safety before the dividend is cut.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
When earnings decline, dividend companies become much more difficult to analyze and to own safely. If earnings fall and the company is forced to cut its dividend, investors could see the value of their investment go up in smoke. With that in mind, we are bothered by International Game Technology’s earnings decline of 21% per year over the past five years. When earnings per share decrease, the maximum amount of dividends that can be paid also decreases.
Most investors primarily gauge a company’s dividend prospects by checking the historical rate of dividend growth. International Game Technology’s dividend payments are effectively stable compared to seven years ago. If a company’s dividend remains stable while profits are falling, it is usually a sign that it is paying out a higher percentage of its profits. This can become unsustainable if revenues drop enough.
From a dividend perspective, should investors buy or avoid International Game Technology? Payout ratios are within a reasonable range, implying that the dividend can be sustainable. However, declining earnings are a serious concern and could threaten the dividend going forward. It might be worth investigating whether the company is reinvesting in growth projects that could boost earnings and dividends in the future, but so far we’re not so optimistic about its dividend outlook.
If you want to learn more about International Game Technology, it helps to know the risks this company faces. Every business has risks, and we’ve spotted 3 warning signs for International Game Technology (1 of which makes us a little uncomfortable!) that you should know.
If you are looking for good dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.