The board of Krispy Kreme, Inc. (NASDAQ:DNUT) has announced that it will pay a dividend of $0.035 per share on the 7th of February. Including this payment, the dividend yield on the stock will be 1.1%, which is a modest boost for shareholders' returns.
Krispy Kreme's Payment Has Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. Even in the absence of profits, Krispy Kreme is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.
Analysts expect a massive rise in earnings per share in the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 6.4%, so there isn't too much pressure on the dividend.
Krispy Kreme Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The last annual payment of $0.14 was flat on the annual payment from2 years ago. Krispy Kreme hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.
The Company Could Face Some Challenges Growing The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. Krispy Kreme has seen EPS rising for the last five years, at 19% per annum. Even though the company isn't making a profit, strong earnings growth could turn that around in the near future. As long as the company becomes profitable soon, it is on a trajectory that could see it being a solid dividend payer.
Krispy Kreme's Dividend Doesn't Look Sustainable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means Krispy Kreme has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Krispy Kreme is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 10 analysts we track are forecasting for Krispy Kreme for free with public analyst estimates for the company. Is Krispy Kreme not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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