Some investors rely on dividends to grow their wealth. If you're a dividend enthusiast, you might be interested to know the following: International Game Technology PLC (NYSE:IGT) is 3 days away from its ex-dividend date. The ex-dividend date is one day before the settlement date, which is the date a shareholder must be on the company's books to receive the dividend. The ex-dividend date is important because it takes two full business days for the settlement process, so if you miss it, you won't be on the company's books on the settlement date. This means that you'll need to buy International Game Technology shares by May 30th to receive the dividend paid on June 13th.
The company's next dividend will be US$0.20 per share, and in the last 12 months the company has paid a total of US$0.80 per share. Based on the past year's dividends, International Game Technology stock has a trailing dividend yield of approximately 4.1% on the current share price of US$19.67. Dividends are an important source of income for many shareholders, but the health of a business is essential to maintaining a dividend. As a result, we need to investigate whether International Game Technology can afford its dividend, and if the dividend could grow.
Check out the latest analysis on International Gaming Technology
If a company pays out more than it earned in dividends, the dividend may become unsustainable – never an ideal situation. International Game Technology paid out 70% of its profits to investors last year, which is a normal dividend level for most companies. However, cash flow is more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its dividend. Last year the company paid out 25% of its free cash flow as dividends, which is low to say the least.
It's good to see that International Game Technology'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.
Click here to see the company's dividend payout ratio, plus analyst estimates of its future dividends.
Are profits and dividends increasing?
Companies with consistently growing earnings per share usually make the best dividend stocks, as it is easier to grow dividends per share. If business slows and the dividend is cut, the company's value could fall sharply. It's good to see that International Game Technology's revenue is growing fast, up 43% per year over the past five years. Management seems to have struck a good balance between reinvesting in growth and paying dividends to shareholders. Earnings per share have been growing rapidly, and coupled with some reinvestment and a moderate dividend payout ratio, this stock could have decent dividend prospects going forward.
Another key way to gauge a company's dividend prospects is to measure the historical rate of dividend growth, and International Game Technology's dividend appears to be roughly the same as it was 9 years ago.
Final conclusion
Is International Game Technology an attractive dividend stock, or is it better left on the shelf? We like International Game Technology's growing earnings per share and the fact that it has a around-average payout ratio but a low payout ratio to its cashflow. Overall, we think this is an attractive combination and one that's worth investigating further.
With that in mind, International Game Technology has an attractive dividend, but it's worth being aware of the risks associated with the stock. International Game Technology Two Warning Signs in Investment AnalysisOne of them cannot be ignored…
Generally speaking, we don't recommend just buying the first dividend stock you see. A curated list of interesting stocks with high dividend payouts.
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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
