Last update on 2024-06-27

MGM Resorts (MGM) - Dividend Analysis (Final Score: 3/8)

Analyze MGM Resorts' dividend performance using an 8-criteria scoring system. Final score: 3 out of 8. Discover if MGM's dividends are stable and reliable for investors.

Short Analysis - Dividend Score: 3

We're running MGM Resorts (MGM) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

MGM Resorts (MGM) gets a low score of 3 out of 8 in assessing their dividend policy. Their dividend yield has been very unreliable and lower than the industry average. They don't have a strong history of growing dividends and have an inconsistent payout ratio. While the dividends have been covered by earnings and to some extent by cash flow, there's noticeable variability that's a concern. Their dividend payments have shown significant instability with recent drops and have not been issued consistently over 25 years. They have been buying back shares more recently, but the repurchase activities have been inconsistent overall.

Insights for Value Investors Seeking Stable Income

Given the low score and the instability in their dividend payments, along with the lack of consistent growth and long-term dividend reliability, MGM Resorts can be considered risky for dividend-focused investors. If you are primarily looking for dependable dividend income, it might be best to look at other companies with more stable and reliable dividend histories.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend Yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. This metric is important because it gives investors an idea of the income they can expect from holding a stock, in addition to any stock price appreciation.

Over the past 20 years, MGM Resorts' dividend yield has fluctuated notably, starting at 0% for several years, peaking at 1.9786% in 2018 and returning to 0% in 2023. Compared to the industry average, which steadily increased from 0.71% in 2003 to 1.48% in 2023, the yield from MGM Resorts can be seen as less reliable and significantly lower currently. The return to a 0% yield, especially when industry averages are improving, signals a bad trend for investors seeking consistent dividend income. This volatility, coupled with periods of non-payment, makes MGM Resorts less appealing to dividend-focused investors.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend Growth Rate

Based on the historical data from the last 20 years, MGM Resorts has not shown a consistent growth in dividends. The Dividend Per Share (DPS) ratio only starts to appear from 2019, with some years showing extremely negative values, such as -69.4231 in 2021 and -93.0818 in 2023. Consequently, the average Dividend Ratio over this period is -11.24. This trend is certainly negative and indicates that MGM has not demonstrated a reliable or growing dividend policy, making it unattractive to investors who prioritize steady income from dividends.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average payout ratio lower than 65% is an important indicator of a company's dividend sustainability and financial health. A consistently lower payout ratio indicates that the company retains a significant portion of its earnings for reinvestment or to cushion against future losses, while still returning value to shareholders.

Let's take an in-depth look at MGM Resorts' historical payout ratios over the past 20 years. According to the given data, MGM's payout ratio has generally stayed well below the 65% threshold with a few exceptions. Notably, in 2017 it reached 12.99%, in 2018 it surged to 56.51%, and in 2019, it was 13.30%. Interestingly, the company had a negative payout ratio in 2020 due to unusual or one-off financial disruptions probably related to the COVID-19 pandemic, which many businesses experienced. On average, the ratio is around 3.62%, which is phenomenally low and indicative of a strong capacity for reinvestment and robust financial health. Overall, this trend is extremely favorable for potential investors focused on dividend reliability and long-term growth.

Dividends Well Covered by Earnings?

Dividends should ideally be covered by earnings, meaning the company generates sufficient profits to pay its dividends. This is measured by the payout ratio and ensures sustainability.

For MGM Resorts (MGM), we see that from 2003 to 2016, the company didn't pay any dividends despite having positive EPS in some years like 2003, 2004, 2005, 2006, and 2007. Starting from 2017, dividends were initiated but the payout ratio in 2017 was only about 13%, indicating dividends were well covered by earnings. However, from 2018 to 2023, the coverage ratio fluctuates. Specifically, in 2020 and 2021, the coverage ratios were negative, aligning with years of negative EPS due to the impact of the COVID-19 pandemic. In 2022 and 2023, although the coverage ratio was positive, it remained extremely low, suggesting earnings covered dividends by a very thin margin. Overall, except for the years greatly impacted by external factors, dividends were primarily well covered by earnings, indicating sound financial health regarding dividend sustainability.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow is a critical criterion determining a company's ability to sustain dividend payments from its free cash flow (FCF) instead of relying on debt or other sources of financing. This provides insights into financial stability and management's operational efficiency.

MGM Resorts' free cash flow (FCF) has witnessed considerable volatility over the analyzed years. While the FCF has shown positive values at various intervals, significant negative values, such as -$1.92 billion in 2007 and -$1.76 billion in 2020, stand out. The dividend payout began in 2012, with the highest amount being $386.7 million in 2014. Since then, dividends have been relatively well-covered by FCF in most years, especially highlighting 2014 (2.22x coverage) and 2016 (1.11x coverage). However, there are instances where this ratio dips drastically, reflecting inadequacy, such as in 2015 (-0.67x coverage) and 2019 (0.25x coverage), likely due to turbulent FCF. This variability negatively impacts investor confidence in dividend reliability. Additionally, 2022 and 2023 data demonstrate minimal coverage (around 0.004x), posing concerns about the sustainability of these dividends purely from FCF in the current period. Overall, while there are periods of strength, inconsistency in FCF negatively affects the reliability of dividends for MGM Resorts.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividend payments over the past 20 years are crucial for income-seeking investors. A consistent dividend provides a predictable income stream and fosters investor confidence in the company's financial health. A dividend drop of over 20% can signal potential financial instability, making it essential to assess the stability of dividends when evaluating a company's financial reliability.

Examining MGM Resorts' dividend payment history over the last 20 years, it is evident that the company only started paying dividends in 2017. Subsequently, the company's dividend per share increased from $0.44 in 2017 to $0.48 in 2018 and $0.52 in 2019, showing an upward trend initially. However, in 2020 the dividend saw a drastic reduction to $0.159, and it further dropped to $0.011 in 2021, stabilizing around $0.012 in 2022 but subsequently dropping to $0 in 2023. The consecutive reductions post-2019 reveal drops significantly greater than 20%, indicating considerable instability in dividends. Missing several years of dividend payments now makes MGM a less attractive choice for income-seeking investors, suggesting financial struggles that might affect consistent future payouts.

Dividends Paid for Over 25 Years?

Dividends paid consistently for over 25 years is a sign of strong financial health and a commitment to returning value to shareholders.

MGM Resorts has had an inconsistent dividend payment history over the past 25 years. For example, from 1998 to 2003, MGM paid no dividends. Notably, in 2004, they paid a small dividend of $0.025 per share, but again, no dividends were paid from 2005 to 2015. Intermittent dividend payments were seen from 2016 onwards, with peaks such as $0.48 in 2018 and lows such as $0.012 in 2021. Therefore, MGM does not meet the criterion of providing dividends consistently over a span of 25 years, which can be viewed as a concern for long-term income-focused investors.

Reliable Stock Repurchases Over the Past 20 Years?

Analyzing a company's stock repurchase activities over the past 20 years helps investors understand if the company has been consistently buying back its shares, which can be a positive signal of financial health and shareholder value return.

MGM Resorts (MGM) has exhibited a pattern of stock repurchase over the past 20 years, but with some inconsistency. The number of shares has fluctuated significantly: from a low of around 280 million shares in the mid-2000s to a peak of nearly 580 million shares in 2017. Recently, the number of shares has been steadily decreasing, from approximately 578 million shares in 2017 to about 355 million shares in 2023. This decline in share count, particularly in the past five years, suggests a renewed focus on returning value to shareholders through buybacks. The average repurchase rate over the last 20 years is approximately 1.49%, indicating relatively moderate repurchasing activity on average. Overall, the trend seems positive in recent years, showcasing the company's effort to enhance shareholder value, especially considering the significant reduction observed from 2020 onwards. However, the inconsistency in buybacks throughout the span raises some concerns about the reliability of these repurchase activities in the longer term.