I love a good dividend and on the scale of sustainable, consistent dividend payers I would rank casino and hotel operator SKYCITY Entertainment Group Limited (ASX: SKC) reasonably high up.
The dividend currently yields about 5% per year, but comes with a solid pathway for future revenue growth which I think makes it a top ASX dividend stock to buy today.
Short term bump…
Although revenues have been relatively flat over the last three years, last month the company announced it expects a nice bump to full earnings thanks to a higher-than-expected win rate across the company's casinos in the first half of the financial year.
This will support SKYCITY's rigid dividend focus in the short term, but could also be the start of a ramp-up in earnings over the next few years.
…Long term boom?
SKYCITY, like Crown Resorts Ltd (ASX: CWN), is in the middle of a period of significant capital investment which will attract more customers and bring in increasing amounts of cash once complete.
The investment includes a new hotel and international convention centre at its flag-ship Auckland site, as well as a $330 million expansion of its Adelaide casino.
Auckland is crucial for SKYCITY, contributing about 70% of operating earnings so the increased capacity, which coincides with a significant upgrade to the city's inner-city rail service and a growing population, will continue to support valuable growth at the site.
Is the dividend sustainable?
In the 2018 financial year SKYCITY had a dividend payout ratio of 80% which on the surface looks sustainable. However given the level of capital expenditure going on the company also to had borrow a lot of money to help fund future growth.
This isn't surprising given the availability of cheap debt and the company's commitment to pay a dividend. 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 focus on maintaining regular dividend payments and a strong runway to earnings growth going forward, I would rate SKYCITY as one of my top dividend picks today.
