FAT Brands (NASDAQ:FAT) Is Due To Pay A Dividend Of US$0.13
FAT Brands Inc. (NASDAQ:FAT) has announced that it will pay a dividend of US$0.13 per share on the 1st of June. Based on this payment, the dividend yield on the company's stock will be 10%, which is an attractive boost to shareholder returns.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. FAT Brands' stock price has reduced by 39% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
View our latest analysis for FAT Brands
FAT Brands' Distributions May Be Difficult To Sustain
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Even in the absence of profits, FAT Brands is paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.
Analysts expect the EPS to grow by 38.7% over the next 12 months. This is the right direction to be moving, but it is not enough to achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.
FAT Brands' Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. The first annual payment during the last 4 years was US$0.38 in 2018, and the most recent fiscal year payment was US$0.52. This works out to be a compound annual growth rate (CAGR) of approximately 8.1% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
Dividend Growth Potential Is Shaky
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been sinking by 72% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
We'd also point out that FAT Brands has issued stock equal to 11% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
FAT Brands' Dividend Doesn't Look Great
Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. We don't think that this is a great candidate to be an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for FAT Brands you should be aware of, and 2 of them are a bit concerning. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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