The board of Golden Entertainment, Inc. (NASDAQ:GDEN) has announced that it will pay a dividend on the 3rd of October, with investors receiving $0.25 per share. Based on this payment, the dividend yield on the company’s stock will be 4.1%, which is an attractive boost to shareholder returns.
A big dividend yield for a few years doesn’t mean much if it can’t be sustained. Based on the last payment, Golden Entertainment’s profits didn’t cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
EPS is set to grow by 105.8% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 83% – on the higher side, but we wouldn’t necessarily say this is unsustainable.
Check out our latest analysis for Golden Entertainment
It is tough to make a judgement on how stable a dividend is when the company hasn’t been paying one for very long. This doesn’t mean that the company can’t pay a good dividend, but just that we want to wait until it can prove itself.
Investors could be attracted to the stock based on the quality of its payment history. Golden Entertainment has seen EPS rising for the last five years, at 31% per annum. EPS has been growing well, but Golden Entertainment has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
In summary, while it’s good to see that the dividend hasn’t been cut, we are a bit cautious about Golden Entertainment’s payments, as there could be some issues with sustaining them into the future. The payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we’ve identified 3 warning signs for Golden Entertainment (1 makes us a bit uncomfortable!) 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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