SkyCity Entertainment’s dividend currently yields a juicy 5% per year, but we need to dig deeper before deciding if it’s any good to own for 2020.
I am ever wary of dividends, because I think they have a way of blinding investors to business risks and management sins. This can cause irreparable damage to the value of a portfolio and I think the large share price falls of Telstra Corporation Ltd (ASX: TLS) and AMP Limited (ASX: AMP) have exemplified this.
That’s why it is crucial to check that a dividend is sustainable.
Is the SkyCity dividend sustainable?
SkyCity management is acutely aware of the value investors assign to the company’s dividend and is actively committed to keeping it. As the company explicitly notes in its 2018 annual report, “the relatively high dividend yield that SkyCity offers is valued by shareholders and should be preserved and recognised when looking at any future funding requirements.”
With such a clear management focus on maintaining regular dividend payments, it’s worth checking the sustainability of these payments even more carefully.
In the 2019 financial year, SkyCity had a dividend payout ratio of 93%, which does feel high. However, the company also unlocked a bundle of cash after the sale of its Darwin Casino and Auckland car park concession which will deliver an extra NZ$450 million.
Is SkyCity Entertainment growing?
SkyCity, like Crown Resorts, is in the middle of a period of significant investment that will help it to grow revenue going forwards, attracting more customers and increasing cash flow when complete.
The investment includes a new hotel and international convention centre at its flagship Auckland site, as well as a $330 million expansion of its Adelaide casino.
This makes me more comfortable that the dividend has growth potential going forward and, in my view, it lends weight to SkyCity being a solid income stock to own for 2020.
When will the SkyCity Entertainment dividend be paid?
Shares in SkyCity Entertainment will go ex-dividend next week on 29 August 2019. The ‘ex-date’ is when the shares start selling without the value of its next dividend payment, so an investor needs to own the shares before the ex-date to receive the dividend.
The dividend will then be paid on Friday 13 September 2019.
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The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. The Motley Fool Australia has recommended Sky City Entertainment Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.