Cheesecake Factory (NASDAQ:CAKE) Is Due To Pay A Dividend Of $0.27

The Cheesecake Factory Incorporated (NASDAQ:CAKE) has announced that it will pay a dividend of $0.27 per share on the 26th of November. This means the dividend yield will be fairly typical at 2.4%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Cheesecake Factory's stock price has increased by 31% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for Cheesecake Factory

Cheesecake Factory's Projected Earnings Seem Likely To Cover Future Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last dividend, Cheesecake Factory is earning enough to cover the payment, but then it makes up 101% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to rise by 57.9% over the next year. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.56 in 2014 to the most recent total annual payment of $1.08. This means that it has been growing its distributions at 6.8% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Cheesecake Factory May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings have grown at around 3.3% a year for the past five years, which isn't massive but still better than seeing them shrink. The company has been growing at a pretty soft 3.3% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Cheesecake Factory's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Cheesecake Factory's payments, as there could be some issues with sustaining them into the future. While Cheesecake Factory is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, Cheesecake Factory has 3 warning signs (and 1 which can't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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