Red Rock Resorts (NASDAQ:RRR) Will Pay A Dividend Of $0.25

Red Rock Resorts, Inc.'s (NASDAQ:RRR) investors are due to receive a payment of $0.25 per share on 30th of June. This makes the dividend yield 4.2%, which will augment investor returns quite nicely.

We've discovered 2 warning signs about Red Rock Resorts. View them for free.

Estimates Indicate Red Rock Resorts' Could Struggle to Maintain Dividend Payments In The Future

If the payments aren't sustainable, a high yield for a few years won't matter that much. 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. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Over the next year, EPS is forecast to fall by 28.6%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 126%, which could put the dividend under pressure if earnings don't start to improve.

Check out our latest analysis for Red Rock Resorts

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. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the annual payment back then was $0.40, compared to the most recent full-year payment of $2.00. This means that it has been growing its distributions at 20% 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 Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Red Rock Resorts has impressed us by growing EPS at 37% 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 don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Red Rock Resorts has been making. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Red Rock Resorts (1 is concerning!) that you should be aware of before investing. Is Red Rock Resorts not quite the opportunity you were looking for? Why not check out our selection of top 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.