J & J Snack Foods Corp. (NASDAQ:JJSF) is about to trade ex-dividend in the next 2 days. You will need to purchase shares before the 16th of March to receive the dividend, which will be paid on the 8th of April.
J & J Snack Foods’s upcoming dividend is US$0.57 a share, following on from the last 12 months, when the company distributed a total of US$2.30 per share to shareholders. Last year’s total dividend payments show that J & J Snack Foods has a trailing yield of 1.8% on the current share price of $126.52. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it’s growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. J & J Snack Foods paid out a comfortable 41% of its profit last year. A useful secondary check can be to evaluate whether J & J Snack Foods generated enough free cash flow to afford its dividend. It distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.
It’s positive to see that J & J Snack Foods’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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we’re encouraged by the steady growth at J & J Snack Foods, with earnings per share up 5.4% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. J & J Snack Foods has delivered an average of 19% per year annual increase in its dividend, based on the past ten years of dividend payments. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Is J & J Snack Foods an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and J & J Snack Foods is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and J & J Snack Foods is halfway there. There’s a lot to like about J & J Snack Foods, and we would prioritise taking a closer look at it.
So while J & J Snack Foods looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. For example – J & J Snack Foods has 1 warning sign we think you should be aware of.
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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