Cheesecake Factory (NASDAQ:CAKE) Has Announced A Dividend Of $0.27

The board of The Cheesecake Factory Incorporated (NASDAQ:CAKE) has announced that it will pay a dividend on the 19th of March, with investors receiving $0.27 per share. This means the annual payment is 3.1% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Cheesecake Factory

Cheesecake Factory's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite comfortably covered by Cheesecake Factory's earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 85% indicates it is more focused on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 75.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was $0.48, compared to the most recent full-year payment of $1.08. This means that it has been growing its distributions at 8.4% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Although it's important to note that Cheesecake Factory's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Our Thoughts On Cheesecake Factory'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 Cheesecake Factory is earning enough to cover the dividend, we are generally unimpressed with its future prospects. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 3 warning signs for Cheesecake Factory that investors should take into consideration. 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.