Readers hoping to buy Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 10th of October will not receive this dividend, which will be paid on the 11th of November.
Dave & Buster's Entertainment's next dividend payment will be US$0.2 per share. Last year, in total, the company distributed US$0.6 to shareholders. Based on the last year's worth of payments, Dave & Buster's Entertainment stock has a trailing yield of around 1.5% on the current share price of $40.69. If you buy this business for its dividend, you should have an idea of whether Dave & Buster's Entertainment's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Dave & Buster's Entertainment paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 24% of its free cash flow in the last year.
It's positive to see that Dave & Buster's Entertainment'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.
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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Dave & Buster's Entertainment has grown its earnings rapidly, up 117% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Dave & Buster's Entertainment looks like a promising growth company.
Given that Dave & Buster's Entertainment has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
Has Dave & Buster's Entertainment got what it takes to maintain its dividend payments? Dave & Buster's Entertainment has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Dave & Buster's Entertainment looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for Dave & Buster's Entertainment? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.