It looks like The Cheesecake Factory Incorporated (NASDAQ:CAKE) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 6th of March in order to be eligible for this dividend, which will be paid on the 20th of March.
Cheesecake Factory's upcoming dividend is US$0.36 a share, following on from the last 12 months, when the company distributed a total of US$1.44 per share to shareholders. Last year's total dividend payments show that Cheesecake Factory has a trailing yield of 4.0% on the current share price of $35.62. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Cheesecake Factory paying out a modest 48% of its earnings.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Cheesecake Factory earnings per share are up 7.2% per annum 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. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Cheesecake Factory has delivered 15% dividend growth per year on average over the past eight years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has Cheesecake Factory got what it takes to maintain its dividend payments? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. Overall, Cheesecake Factory looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
Ever wonder what the future holds for Cheesecake Factory? See what the 19 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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