Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, InterContinental Hotels Group PLC (LON:IHG) has paid a dividend to shareholders. It currently yields 2.0%. Should it have a place in your portfolio? Let’s take a look at InterContinental Hotels Group in more detail.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How does InterContinental Hotels Group fare?
The current trailing twelve-month payout ratio for the stock is 35%, which means that the dividend is covered by earnings. Going forward, analysts expect IHG’s payout to increase to 42% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.7%. However, EPS is forecasted to fall to $2.67 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Although IHG’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
Compared to its peers, InterContinental Hotels Group generates a yield of 2.0%, which is on the low-side for Hospitality stocks.
Whilst there are few things you may like about InterContinental Hotels Group from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three essential factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for IHG’s future growth? Take a look at our free research report of analyst consensus for IHG’s outlook.
- Valuation: What is IHG worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether IHG is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.