Papa John's International, Inc. (NASDAQ:PZZA) will increase its dividend on the 27th of August to US$0.35, which is 56% higher than last year. Although the dividend is now higher, the yield is only 0.9%, which is below the industry average.

Check out our latest analysis for Papa John's International

Papa John's International Is Paying Out More Than It Is Earning

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Papa John's International's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

EPS is set to fall by 64.2% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 158%, which could put the dividend under pressure if earnings don't start to improve.

Papa John's International Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2013, the first annual payment was US$0.50, compared to the most recent full-year payment of US$0.90. This implies that the company grew its distributions at a yearly rate of about 7.6% over that duration. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

Papa John's International May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Papa John's International hasn't seen much change in its earnings per share over the last five years.

We'd also point out that Papa John's International has issued stock equal to 11% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Papa John's International will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Papa John's International that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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. 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.

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