Be Sure To Check Out InterContinental Hotels Group PLC (LON:IHG) Before It Goes Ex-Dividend

InterContinental Hotels Group PLC (LON:IHG) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, InterContinental Hotels Group investors that purchase the stock on or after the 29th of August will not receive the dividend, which will be paid on the 3rd of October.

The company's upcoming dividend is US$0.532 a share, following on from the last 12 months, when the company distributed a total of US$1.53 per share to shareholders. Based on the last year's worth of payments, InterContinental Hotels Group has a trailing yield of 1.5% on the current stock price of UK£75.20. If you buy this business for its dividend, you should have an idea of whether InterContinental Hotels Group's dividend is reliable and sustainable. As a result, readers should always check whether InterContinental Hotels Group has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for InterContinental Hotels Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. InterContinental Hotels Group paid out a comfortable 40% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 38% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see InterContinental Hotels Group's earnings per share have risen 16% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. InterContinental Hotels Group's dividend payments per share have declined at 6.2% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Should investors buy InterContinental Hotels Group for the upcoming dividend? InterContinental Hotels Group has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about InterContinental Hotels Group, and we would prioritise taking a closer look at it.

In light of that, while InterContinental Hotels Group has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for InterContinental Hotels Group and you should be aware of them before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.