Cheesecake Factory's (NASDAQ:CAKE) Dividend Will Be $0.27

The Cheesecake Factory Incorporated's (NASDAQ:CAKE) investors are due to receive a payment of $0.27 per share on 18th of March. This payment means that the dividend yield will be 2.0%, which is around the industry average.

Check out our latest analysis for Cheesecake Factory

Cheesecake Factory's Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. However, based ont he last payment, Cheesecake Factory was earning enough to cover the dividend pretty comfortably. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.

Looking forward, earnings per share is forecast to rise by 38.7% over the next year. If the dividend continues on this path, the payout ratio could be 26% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was $0.56, compared to the most recent full-year payment of $1.08. This implies that the company grew its distributions at a yearly rate of about 6.8% over that duration. 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.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Cheesecake Factory hasn't seen much change in its earnings per share over the last five years. If Cheesecake Factory is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

In Summary

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. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for Cheesecake Factory you should be aware of, and 1 of them makes us a bit uncomfortable. Is Cheesecake Factory not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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