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The board of Papa John's International, Inc. (NASDAQ:PZZA) has announced that it will pay a dividend of $0.46 per share on the 30th of May. The dividend yield will be 5.2% based on this payment which is still above the industry average.
Our free stock report includes 3 warning signs investors should be aware of before investing in Papa John's International. Read for free now.
Papa John's International's Projected Earnings Seem Likely To Cover Future Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Papa John's International's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 176% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
The next year is set to see EPS grow by 51.3%. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.
See our latest analysis for Papa John's International
Papa John's International Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.56 in 2015, and the most recent fiscal year payment was $1.84. This means that it has been growing its distributions at 13% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Papa John's International has been growing its earnings per share at 38% a year over the past five years. However, Papa John's International isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.
Our Thoughts On Papa John's International's Dividend
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 the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Papa John's International (of which 1 is significant!) you should know about. 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.