It looks like MGM Resorts International (NYSE:MGM) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 9th of March will not receive this dividend, which will be paid on the 16th of March.
MGM Resorts International’s next dividend payment will be US$0.15 per share, on the back of last year when the company paid a total of US$0.60 to shareholders. Based on the last year’s worth of payments, MGM Resorts International stock has a trailing yield of around 2.6% on the current share price of $23.3. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether MGM Resorts International has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for MGM Resorts International
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. MGM Resorts International paid out just 13% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 25% of the free cash flow it generated, which is a comfortable payout ratio.
It’s positive to see that MGM Resorts International’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 payout ratio, plus analyst estimates of its future dividends.
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. That’s why it’s comforting to see MGM Resorts International’s earnings have been skyrocketing, up 40% per annum for the past five years. MGM Resorts International is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. MGM Resorts International has delivered an average of 11% per year annual increase in its dividend, based on the past three years of dividend payments. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Final Takeaway
Is MGM Resorts International worth buying for its dividend? We love that MGM Resorts International is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It’s a promising combination that should mark this company worthy of closer attention.
In light of that, while MGM Resorts International has an appealing dividend, it’s worth knowing the risks involved with this stock. Every company has risks, and we’ve spotted 5 warning signs for MGM Resorts International (of which 2 make us uncomfortable!) you should know about.
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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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