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The Cheesecake Factory Incorporated (NASDAQ:CAKE) will pay a dividend of $0.27 on the 18th of March. This payment means that the dividend yield will be 2.0%, which is around the industry average.
View our latest analysis for Cheesecake Factory
Cheesecake Factory's Payment Could Potentially Have Solid Earnings Coverage
Unless the payments are sustainable, the dividend yield doesn't mean too much. But before making this announcement, Cheesecake Factory's earnings quite easily covered the dividend. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.
Looking forward, earnings per share is forecast to rise by 39.3% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 26% by next year, which is in a pretty sustainable range.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of $0.56 in 2015 to the most recent total annual payment of $1.08. This implies that the company grew its distributions at a yearly rate of about 6.8% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. However, Cheesecake Factory's EPS was effectively flat over the past five years, which could stop the company from paying more every year. While EPS growth is quite low, Cheesecake Factory has the option to increase the payout ratio to return more cash to shareholders.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Cheesecake Factory has been making. We don't think Cheesecake Factory is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Cheesecake Factory has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about. Is Cheesecake Factory not quite the opportunity you were looking for? Why not check out 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.