Nathan's Famous, Inc. (NASDAQ:NATH) Will Pay A US$0.35 Dividend In Four Days
Nathan's Famous, Inc. (NASDAQ:NATH) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 19th of February, you won't be eligible to receive this dividend, when it is paid on the 5th of March.
Nathan's Famous's next dividend payment will be US$0.35 per share, and in the last 12 months, the company paid a total of US$1.40 per share. Calculating the last year's worth of payments shows that Nathan's Famous has a trailing yield of 2.3% on the current share price of $60.12. If you buy this business for its dividend, you should have an idea of whether Nathan's Famous's dividend is reliable and sustainable. So we need to investigate whether Nathan's Famous can afford its dividend, and if the dividend could grow.
View our latest analysis for Nathan's Famous
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Nathan's Famous paid out a comfortable 47% 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. Dividends consumed 55% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Nathan's Famous paid out over the last 12 months.
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 Nathan's Famous, with earnings per share up 2.5% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past three years, Nathan's Famous has increased its dividend at approximately 12% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
Is Nathan's Famous an attractive dividend stock, or better left on the shelf? Earnings per share growth has been modest, and it's interesting that Nathan's Famous is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. We've identified 4 warning signs with Nathan's Famous (at least 2 which are significant), and understanding them should be part of your investment process.
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.
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. 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.
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