Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Ruth's Hospitality Group, Inc. (NASDAQ:RUTH) is about to go ex-dividend in just 3 days. You can purchase shares before the 21st of August in order to receive the dividend, which the company will pay on the 5th of September.
Ruth's Hospitality Group's next dividend payment will be US$0.13 per share, and in the last 12 months, the company paid a total of US$0.52 per share. Calculating the last year's worth of payments shows that Ruth's Hospitality Group has a trailing yield of 2.6% on the current share price of $19.7. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ruth's Hospitality Group paid out a comfortable 34% of its profit last year. A useful secondary check can be to evaluate whether Ruth's Hospitality Group generated enough free cash flow to afford its dividend. Fortunately, it paid out only 34% of its free cash flow in the past year.
It's positive to see that Ruth's Hospitality Group'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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Ruth's Hospitality Group's earnings per share have been growing at 15% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 6 years, Ruth's Hospitality Group has lifted its dividend by approximately 22% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Is Ruth's Hospitality Group worth buying for its dividend? Ruth's Hospitality Group 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. Ruth's Hospitality Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for Ruth's Hospitality Group? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.