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Krispy Kreme, Inc. (NASDAQ:DNUT) will pay a dividend of $0.035 on the 9th of August. Including this payment, the dividend yield on the stock will be 0.9%, which is a modest boost for shareholders' returns.
Check out our latest analysis for Krispy Kreme
Krispy Kreme's Dividend Is Well Covered By Earnings
If it is predictable over a long period, even low dividend yields can be attractive. Krispy Kreme isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. This is quite a strong warning sign that the dividend may not be sustainable.
According to analysts, EPS should be several times higher next year. If the dividend extends its recent trend, estimates say the dividend could reach 28%, which we would be comfortable to see continuing.
Krispy Kreme Is Still Building Its Track Record
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. There hasn't been much of a change in the dividend over the last 2 years. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
The Company Could Face Some Challenges Growing The Dividend
Investors could be attracted to the stock based on the quality of its payment history. Krispy Kreme has impressed us by growing EPS at 21% per year over the past five years. While the company is not yet turning a profit, it is growing at a good rate. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.
Krispy Kreme's Dividend Doesn't Look Sustainable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Krispy Kreme that you should be aware of before investing. Is Krispy Kreme not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.