Readers hoping to buy International Game Technology PLC (NYSE:IGT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase International Game Technology's shares on or after the 11th of March will not receive the dividend, which will be paid on the 25th of March.

The company's next dividend payment will be US$0.20 per share, and in the last 12 months, the company paid a total of US$0.80 per share. Calculating the last year's worth of payments shows that International Game Technology has a trailing yield of 4.5% on the current share price of US$17.97. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether International Game Technology can afford its dividend, and if the dividend could grow.

Check out our latest analysis for International Game Technology

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. International Game Technology distributed an unsustainably high 139% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 18% of its free cash flow last year.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and International Game Technology fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see International Game Technology has grown its earnings rapidly, up 61% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. International Game Technology's dividend payments are broadly unchanged compared to where they were 10 years ago.

The Bottom Line

Has International Game Technology got what it takes to maintain its dividend payments? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with International Game Technology's paying out such a high percentage of its profit. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of International Game Technology's dividend merits.

While it's tempting to invest in International Game Technology for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 2 warning signs for International Game Technology (1 makes us a bit uncomfortable) you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.