Red Rock Resorts (NASDAQ:RRR) Has Announced That It Will Be Increasing Its Dividend To $0.26

Red Rock Resorts, Inc.'s (NASDAQ:RRR) dividend will be increasing from last year's payment of the same period to $0.26 on 31st of December. This takes the dividend yield to 3.8%, which shareholders will be pleased with.

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Red Rock Resorts' Projections Indicate Future Payments May Be Unsustainable

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Red Rock Resorts was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

Over the next year, EPS is forecast to fall by 29.1%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 103%, which could put the dividend under pressure if earnings don't start to improve.

See our latest analysis for Red Rock Resorts

Red Rock Resorts' Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the dividend has gone from $0.40 total annually to $2.04. This means that it has been growing its distributions at 20% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Red Rock Resorts has grown earnings per share at 22% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Red Rock Resorts' Dividend

Overall, we always like to see the dividend being raised, but we don't think Red Rock Resorts will make a great income stock. While Red Rock Resorts is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 3 warning signs for Red Rock Resorts you should be aware of, and 1 of them is significant. If you are a dividend investor, you might also want to look at our curated 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.