Shares in FTSE 100 dividend growth stock Flutter Entertainment (LSE: FLTR) have slumped in value over the past few weeks. Indeed, after hitting an all-time high in mid-February, the stock has since crashed by nearly 40%.
However, this appears to be an overreaction based on what’s happened to the online gaming market in China. As such, now could be an excellent time for long-term investors to snap up a share of this FTSE 100 dividend growth stock at a discount price.
Growth concerns
Flutter is one of the largest sports betting and gaming operators in the world. This doesn’t mean the company is wholly isolated from the impacts of the global coronavirus outbreak. Nevertheless, it could be better positioned to weather the storm than most.
You see, while the cancellation of major sporting events around the world will hit betting volumes, the group’s online casino and gaming businesses could thrive. This is based on the impact the outbreak has had on China’s Tencent Holdings.
Tencent is one of China’s largest digital companies. Its subsidiaries specialise in various online activities, including gaming. China’s decision to lock down its economy has had a substantial positive impact on the business.
As millions of Chinese citizens have been confined to their homes, demand for Tencent’s games has spiked. Following this growth, the company reckons revenue in the second quarter will surpass all expectations.
Tencent’s experience suggests that while Flutter will lose some revenue from the cancellation of major sporting events, rising demand for online games could offset some of these losses.
Dividend growth
As well as all of the above, Flutter has a strong balance sheet. This will help support the business through these tough times. At the end of its 2019 financial year, the group’s ratio of net debt to shareholder equity was just 11%.
What’s more, last year the company’s dividend cost the group a total of £156m. That’s compared to free cash flow around £300m. These numbers imply Flutter’s dividend is safe, even if earnings fall 50%.
It seems unlikely the company will report such a severe decline. If economic growth returns in the second half, Flutter is likely to make a rapid recovery.
Therefore, it would appear investors can depend on Flutter’s 3.5% dividend yield. Because payout has grown at an annual rate of 8% for the past six years, it also seems likely management will look to increase the dividend next year as well. That’s assuming the economy can recover in the second half of 2020.
Overall, it looks as if this FTSE 100 dividend growth stock could be an attractive addition to your portfolio after recent declines. Flutter’s online business should provide some revenue protection in the near term. And when the economy finally starts to pull itself back together again, the group’s global presence should help it return to growth.
