Should You Buy Dine Brands Global, Inc. (NYSE:DIN) For Its Upcoming Dividend?
It looks like Dine Brands Global, Inc. (NYSE:DIN) is about to go ex-dividend in the next four days. 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. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Dine Brands Global's shares on or after the 19th of March, you won't be eligible to receive the dividend, when it is paid on the 5th of April.
The company's next dividend payment will be US$0.51 per share, on the back of last year when the company paid a total of US$2.04 to shareholders. Calculating the last year's worth of payments shows that Dine Brands Global has a trailing yield of 4.2% on the current share price of US$48.32. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Dine Brands Global
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Dine Brands Global paid out a comfortable 33% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 34% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Dine Brands Global's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Dine Brands Global, with earnings per share up 7.0% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Dine Brands Global's dividend payments per share have declined at 3.8% per year on average over the past 10 years, which is uninspiring. Dine Brands Global is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Final Takeaway
From a dividend perspective, should investors buy or avoid Dine Brands Global? Earnings per share growth has been growing somewhat, and Dine Brands Global is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Dine Brands Global is being conservative with its dividend payouts and could still perform reasonably over the long run. Dine Brands Global looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Dine Brands Global looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 3 warning signs for Dine Brands Global (2 are concerning!) that you ought to be aware of before buying the shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
