Nathan's Famous, Inc. (NASDAQ:NATH) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
It looks like Nathan's Famous, Inc. (NASDAQ:NATH) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Nathan's Famous investors that purchase the stock on or after the 17th of November will not receive the dividend, which will be paid on the 1st of December.
The company's next dividend payment will be US$0.50 per share, on the back of last year when the company paid a total of US$2.00 to shareholders. Based on the last year's worth of payments, Nathan's Famous has a trailing yield of 3.1% on the current stock price of $65.5. 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 check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Nathan's Famous
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Nathan's Famous's payout ratio is modest, at just 41% of profit. 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. Fortunately, it paid out only 38% of its free cash flow in the past year.
It's positive to see that Nathan's Famous'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.
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. It's encouraging to see Nathan's Famous has grown its earnings rapidly, up 50% a year for the past five years. Nathan's Famous is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past five years, Nathan's Famous has increased its dividend at approximately 15% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Is Nathan's Famous worth buying for its dividend? We love that Nathan's Famous is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about Nathan's Famous, and we would prioritise taking a closer look at it.
In light of that, while Nathan's Famous has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 4 warning signs for Nathan's Famous that you should be aware of before investing in their shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
