Is the Tabcorp share price really trading on a 13% dividend yield right now?

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The Tabcorp Holdings Limited (ASX: TAH) share price has outperformed the S&P/ASX 200 Index (ASX: XJO) over the last 12 months while seemingly offering an impressive dividend yield.

The provider of gambling and entertainment services’ stock has lifted around 7.5% over the last 12 months – adjusted for the recent demerger of its lottery and Keno business. It’s currently trading at $1.01.

Meanwhile, the ASX 200 has tumbled nearly 8% since this time last year.

Potentially making the company’s performance even more impressive is the 13.5 cents of dividends it’s paid out in that time. But such offerings likely won’t hold up in the future.

Let’s take a closer look at what’s going on with the ASX 200 consumer discretionary stock’s current dividend yield.

Tabcorp shares offer 13% dividend yield, for now

The Tabcorp share price is currently trading with a 13.3% dividend yield. But that might change in the future following its split from its lottery and Keno business.

The business was spun out into The Lottery Corporation Ltd (ASX: TLC) in May of this year.

It’s also worth noting that, on the eve of their split, the Tabcorp share price closed at $5.34. That saw it offering a dividend yield of 2.5%.

The Lottery Corporation’s assets brought in around 55% of Tabcorp’s earnings before interest, tax, depreciation, and amortisation (EBITDA) in financial year 2021.

Of course, that means it brought in a lot of the cash that made up Tabcorp’s dividends.

Thus, Tabcorp’s future dividends will likely be notably smaller, in line with its new targeted payout ratio of 50% to 70% of its post-demerger net profit after tax (NPAT). Though, there’s no need for immediate worry.

Tabcorp’s final dividend for financial year 2022 is expected to include five months of The Lottery Corporation’s earnings, as well as its own half-year earnings. It will aim to pay out the earnings in line with its previous payout ratio of 70% to 80% of NPAT.

Additionally, many Tabcorp shareholders will now have holdings in a strong dividend-paying stock.

Tabcorp investors received one Lottery Corporation share for each Tabcorp share held as part of the demerger.

The Lottery Corporation is aiming to pay out between 70% and 90% of its NPAT, with its first dividend targeted for March 2023.

The post Is the Tabcorp share price really trading on a 13% dividend yield right now? appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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