Royal Caribbean Cruises Ltd. (NYSE:RCL) has announced that it will be increasing its dividend from last year’s comparable payment on the 13th of October to $1.00. Even though the dividend went up, the yield is still quite low at only 0.9%.
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It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Royal Caribbean Cruises’ dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 67.0%. If the dividend continues on this path, the payout ratio could be 14% by next year, which we think can be pretty sustainable going forward.
View our latest analysis for Royal Caribbean Cruises
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $1.20 in 2015 to the most recent total annual payment of $3.00. This means that it has been growing its distributions at 9.6% per annum over that time. A reasonable rate of dividend growth is good to see, but we’re wary that the dividend history is not as solid as we’d like, having been cut at least once.
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Royal Caribbean Cruises has impressed us by growing EPS at 63% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we’ve identified 2 warning signs for Royal Caribbean Cruises that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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