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Texas Roadhouse, Inc. (NASDAQ:TXRH)'s Could Be A Buy For Its Upcoming Dividend

Simply Wall St

Readers hoping to buy Texas Roadhouse, Inc. (NASDAQ:TXRH) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 10th of September, you won't be eligible to receive this dividend, when it is paid on the 27th of September.

Texas Roadhouse's next dividend payment will be US$0.30 per share, and in the last 12 months, the company paid a total of US$1.20 per share. Based on the last year's worth of payments, Texas Roadhouse stock has a trailing yield of around 2.3% on the current share price of $51.24. If you buy this business for its dividend, you should have an idea of whether Texas Roadhouse's dividend is reliable and sustainable. As a result, readers should always check whether Texas Roadhouse has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Texas Roadhouse

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Texas Roadhouse is paying out an acceptable 51% of its profit, a common payout level among most companies. 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. Fortunately, it paid out only 38% of its free cash flow in the past year.

It's positive to see that Texas Roadhouse'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 the company's payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:TXRH Historical Dividend Yield, September 5th 2019

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. For this reason, we're glad to see Texas Roadhouse's earnings per share have risen 14% per annum over the last five years. Texas Roadhouse has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Texas Roadhouse has delivered an average of 16% per year annual increase in its dividend, based on the past 9 years of dividend payments. 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 Texas Roadhouse worth buying for its dividend? We like Texas Roadhouse's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Texas Roadhouse looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Wondering what the future holds for Texas Roadhouse? See what the 20 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.