Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Dunkin' Brands Group, Inc. (NASDAQ:DNKN) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 29th of November will not receive this dividend, which will be paid on the 11th of December.
Dunkin' Brands Group's next dividend payment will be US$0.38 per share, on the back of last year when the company paid a total of US$1.50 to shareholders. Last year's total dividend payments show that Dunkin' Brands Group has a trailing yield of 2.0% on the current share price of $74.89. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Dunkin' Brands Group can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Dunkin' Brands Group paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. 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. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.
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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Dunkin' Brands Group's earnings per share have risen 16% per annum over the last five years. Dunkin' Brands Group has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last eight years, Dunkin' Brands Group has lifted its dividend by approximately 12% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Should investors buy Dunkin' Brands Group for the upcoming dividend? We like Dunkin' Brands Group'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. Overall we think this is an attractive combination and worthy of further research.
Wondering what the future holds for Dunkin' Brands Group? See what the 25 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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