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There's A Lot To Like About Allegiant Travel Company's (NASDAQ:ALGT) Upcoming US$0.70 Dividend

Allegiant Travel Company (NASDAQ:ALGT) stock is about to trade ex-dividend in 4 days time. This means that investors who purchase shares on or after the 28th of February will not receive the dividend, which will be paid on the 12th of March.

Allegiant Travel's upcoming dividend is US$0.70 a share, following on from the last 12 months, when the company distributed a total of US$2.80 per share to shareholders. Looking at the last 12 months of distributions, Allegiant Travel has a trailing yield of approximately 1.7% on its current stock price of $162.86. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Allegiant Travel

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Allegiant Travel paid out just 20% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Allegiant Travel paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:ALGT Historical Dividend Yield, February 23rd 2020
NasdaqGS:ALGT Historical Dividend Yield, February 23rd 2020

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Allegiant Travel's earnings have been skyrocketing, up 24% per annum for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, six years ago, Allegiant Travel has lifted its dividend by approximately 3.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Allegiant Travel is keeping back more of its profits to grow the business.

The Bottom Line

Has Allegiant Travel got what it takes to maintain its dividend payments? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, Allegiant Travel looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

Ever wonder what the future holds for Allegiant Travel? See what the eight analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.