It looks like Las Vegas Sands Corp. (NYSE:LVS) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 17th of September will not receive the dividend, which will be paid on the 26th of September.
Las Vegas Sands’s next dividend payment will be US$0.77 per share, and in the last 12 months, the company paid a total of US$3.08 per share. Based on the last year’s worth of payments, Las Vegas Sands has a trailing yield of 5.2% on the current stock price of $59.3. If you buy this business for its dividend, you should have an idea of whether Las Vegas Sands’s dividend is reliable and sustainable. So we need to investigate whether Las Vegas Sands can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Las Vegas Sands distributed an unsustainably high 122% of its profit as dividends to shareholders last year. Without extenuating circumstances, we’d consider the dividend at risk of a cut. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the past year it paid out 115% of its free cash flow as dividends, which is uncomfortably high. We’re curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Cash is slightly more important than profit from a dividend perspective, but given Las Vegas Sands’s payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we’re not too excited that Las Vegas Sands’s earnings are down 2.4% a year over the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last eight years, Las Vegas Sands has lifted its dividend by approximately 15% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Las Vegas Sands is already paying out a high percentage of its income, so without earnings growth, we’re doubtful of whether this dividend will grow much in the future.
The Bottom Line
Has Las Vegas Sands got what it takes to maintain its dividend payments? It’s looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (122%) and cash flow (115%) as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. Bottom line: Las Vegas Sands has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Wondering what the future holds for Las Vegas Sands? See what the 17 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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