Red Rock Resorts (NASDAQ:RRR) Is Paying Out A Dividend Of $0.25

Red Rock Resorts, Inc. (NASDAQ:RRR) has announced that it will pay a dividend of $0.25 per share on the 29th of September. This means the annual payment is 4.5% of the current stock price, which is above the average for the industry.

See our latest analysis for Red Rock Resorts

Red Rock Resorts' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Red Rock Resorts is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

EPS is set to fall by 37.5% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could reach 94%, which is definitely on the higher side.

Red Rock Resorts' Dividend Has Lacked Consistency

It's comforting to see that Red Rock Resorts has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 7 years was $0.40 in 2016, and the most recent fiscal year payment was $2.00. This means that it has been growing its distributions at 26% per annum over that time. Red Rock Resorts has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Red Rock Resorts has been growing its earnings per share at 8.8% a year over the past five years. Red Rock Resorts definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Red Rock Resorts' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Red Rock Resorts (1 is a bit unpleasant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of 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.