Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Dunkin’ Brands Group Inc (NASDAQ:DNKN) has paid a dividend to shareholders. It currently yields 1.9%. Should it have a place in your portfolio? Let’s take a look at Dunkin’ Brands Group in more detail.
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it the top 25% annual dividend yield payer?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Dunkin’ Brands Group fit our criteria?
The current trailing twelve-month payout ratio for the stock is 30%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 50%, leading to a dividend yield of around 2.1%. However, EPS is forecasted to fall to $2.81 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view Dunkin’ Brands Group as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Dunkin’ Brands Group has a yield of 1.9%, which is on the low-side for Hospitality stocks.
Whilst there are few things you may like about Dunkin’ Brands Group from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three relevant aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for DNKN’s future growth? Take a look at our free research report of analyst consensus for DNKN’s outlook.
- Valuation: What is DNKN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether DNKN is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.