Here's What We Like About InterContinental Hotels Group's (LON:IHG) Upcoming Dividend

InterContinental Hotels Group PLC (LON:IHG) is about to trade ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase InterContinental Hotels Group's shares before the 31st of August to receive the dividend, which will be paid on the 5th of October.

The company's next dividend payment will be US$0.48 per share. Last year, in total, the company distributed US$1.40 to shareholders. Looking at the last 12 months of distributions, InterContinental Hotels Group has a trailing yield of approximately 1.9% on its current stock price of £58.78. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether InterContinental Hotels Group can afford its dividend, and if the dividend could grow.

See our latest analysis for InterContinental Hotels Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. InterContinental Hotels Group paid out a comfortable 41% of its profit last year. A useful secondary check can be to evaluate whether InterContinental Hotels Group generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.

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?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at InterContinental Hotels Group, with earnings per share up 5.0% on average over the last five years. Recent earnings growth has been limited. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, InterContinental Hotels Group has increased its dividend at approximately 4.4% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid InterContinental Hotels Group? Earnings per share growth has been growing somewhat, and InterContinental Hotels Group is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and InterContinental Hotels Group is halfway there. There's a lot to like about InterContinental Hotels Group, and we would prioritise taking a closer look at it.

While it's tempting to invest in InterContinental Hotels Group for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 3 warning signs with InterContinental Hotels Group and understanding them should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.