SkyCity Entertainment Group (NZSE:SKC) Will Pay A Dividend Of NZ$0.0618

SkyCity Entertainment Group Limited's (NZSE:SKC) investors are due to receive a payment of NZ$0.0618 per share on 21st of March. This means the annual payment is 5.6% of the current stock price, which is above the average for the industry.

View our latest analysis for SkyCity Entertainment Group

SkyCity Entertainment Group's Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, SkyCity Entertainment Group was paying out 1,104% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating free cash flows is a major warning sign for the sustainability of the dividend as these levels are certainly a bit high.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 60%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was NZ$0.20 in 2014, and the most recent fiscal year payment was NZ$0.105. This works out to be a decline of approximately 6.2% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though SkyCity Entertainment Group's EPS has declined at around 46% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

SkyCity Entertainment Group's Dividend Doesn't Look Great

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for SkyCity Entertainment Group you should be aware of, and 1 of them makes us a bit uncomfortable. Is SkyCity Entertainment Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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