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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 Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is about to go ex-dividend in just four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Cracker Barrel Old Country Store's shares before the 13th of January to receive the dividend, which will be paid on the 1st of February.
The company's next dividend payment will be US$1.30 per share, on the back of last year when the company paid a total of US$5.20 to shareholders. Based on the last year's worth of payments, Cracker Barrel Old Country Store has a trailing yield of 3.8% on the current stock price of $136.42. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Cracker Barrel Old Country Store
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. Fortunately Cracker Barrel Old Country Store's payout ratio is modest, at just 46% of profit. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 12% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Cracker Barrel Old Country Store'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.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Cracker Barrel Old Country Store's earnings per share have dropped 8.8% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.