Cracker Barrel Old Country Store (NASDAQ:CBRL) Is Reducing Its Dividend To $0.25

Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) is reducing its dividend from last year's comparable payment to $0.25 on the 6th of August. The dividend yield will be in the average range for the industry 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. Cracker Barrel Old Country Store's stock price has reduced by 42% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

See our latest analysis for Cracker Barrel Old Country Store

Cracker Barrel Old Country Store's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, Cracker Barrel Old Country Store's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

EPS is set to grow by 68.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 93%, which is on the higher side, but certainly still feasible.

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. Since 2014, the annual payment back then was $3.00, compared to the most recent full-year payment of $1.00. Dividend payments have fallen sharply, down 67% over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Over the past five years, it looks as though Cracker Barrel Old Country Store's EPS has declined at around 22% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Cracker Barrel Old Country Store is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 4 warning signs for Cracker Barrel Old Country Store that investors need to be conscious of moving forward. Is Cracker Barrel Old Country Store not quite the opportunity you were looking for? Why not check out our selection of top 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.

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