The Wendy's Company ( NASDAQ:WEN ) stock is about to trade ex-dividend in 4 days time. If you purchase the stock on or after the 30th of August, you won't be eligible to receive this dividend, when it is paid on the 17th of September.
Wendy's's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Looking at the last 12 months of distributions, Wendy's has a trailing yield of approximately 1.9% on its current stock price of $21.08. If you buy this business for its dividend, you should have an idea of whether Wendy's's dividend is reliable and sustainable. As a result, readers should always check whether Wendy's has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Wendy's paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 54% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Wendy's's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Wendy's's earnings have been skyrocketing, up 75% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Wendy's has lifted its dividend by approximately 21% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Should investors buy Wendy's for the upcoming dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Wendy's paid out less than half its earnings and a bit over half its free cash flow. Wendy's looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Wendy's? See what the 22 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org . 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.