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The board of Jack in the Box Inc. (NASDAQ:JACK) has announced that it will pay a dividend of $0.44 per share on the 30th of December. Based on this payment, the dividend yield on the company's stock will be 3.7%, which is an attractive boost to shareholder returns.
Check out our latest analysis for Jack in the Box
Jack in the Box's Future Dividend Projections Seem Positive
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Even in the absence of profits, Jack in the Box is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.
Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 70%, which makes us pretty comfortable with the sustainability of the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from $0.80 total annually to $1.76. This implies that the company grew its distributions at a yearly rate of about 8.2% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
Jack in the Box May Find It Hard To Grow The Dividend
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. In the last five years, Jack in the Box's earnings per share has shrunk at approximately 3.3% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
We're Not Big Fans Of Jack in the Box's Dividend
Overall, while some might be pleased that the dividend wasn't cut, we think this may help Jack in the Box make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Considering all of these factors, we wouldn't rely on this dividend if we wanted to live on the income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Jack in the Box that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.