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 The Cheesecake Factory Incorporated (NASDAQ:CAKE) is about to go ex-dividend in just three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company’s books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Accordingly, Cheesecake Factory investors that purchase the stock on or after the 10th of May will not receive the dividend, which will be paid on the 24th of May.
The company’s next dividend payment will be US$0.27 per share, and in the last 12 months, the company paid a total of US$1.08 per share. Last year’s total dividend payments show that Cheesecake Factory has a trailing yield of 3.0% on the current share price of $35.54. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to investigate whether Cheesecake Factory can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Cheesecake Factory
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. 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. What’s good is that dividends were well covered by free cash flow, with the company paying out 14% of its cash flow last year.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Cheesecake Factory’s earnings per share have fallen at approximately 14% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Cheesecake Factory also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus – perpetually pushing a boulder uphill.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Cheesecake Factory has increased its dividend at approximately 8.4% a year on average.
The Bottom Line
Is Cheesecake Factory an attractive dividend stock, or better left on the shelf? Cheesecake Factory has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we’re not all that optimistic on its dividend prospects.
On that note, you’ll want to research what risks Cheesecake Factory is facing. Every company has risks, and we’ve spotted 4 warning signs for Cheesecake Factory you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.
