The board of International Game Technology PLC (NYSE:IGT) has announced that it will pay a dividend of $0.20 per share on the 10th of December. This means the annual payment is 4.0% of the current stock price, which is above the average for the industry.

See our latest analysis for International Game Technology

International Game Technology's Projected Earnings Seem Likely To Cover Future Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 127% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 22%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Looking forward, earnings per share is forecast to rise by 86.3% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 68% which would be quite comfortable going to take the dividend forward.

International Game Technology's Dividend Has Lacked Consistency

International Game Technology has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The payments haven't really changed that much since 9 years ago. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Could Be Constrained

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. International Game Technology has seen EPS rising for the last five years, at 22% per annum. EPS has been growing well, but International Game Technology has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Our Thoughts On International Game Technology's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about International Game Technology's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for International Game Technology that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.