Krispy Kreme (NASDAQ:DNUT) Will Pay A Dividend Of $0.035

The board of Krispy Kreme, Inc. (NASDAQ:DNUT) has announced that it will pay a dividend of $0.035 per share on the 7th of August. This means the annual payment will be 1.1% of the current stock price, which is lower than the industry average.

Check out our latest analysis for Krispy Kreme

Krispy Kreme's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Even though Krispy Kreme is not generating a profit, it is still paying a dividend. It is also not generating any free cash flow, we definitely have concerns when it comes to the sustainability of the dividend.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 8.8%, so there isn't too much pressure on the dividend.

Krispy Kreme Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The payments haven't really changed that much since 3 years ago. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

The Company Could Face Some Challenges Growing The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Krispy Kreme has been growing its earnings per share at 16% a year over the past five years. Unprofitable companies aren't normally our pick for a dividend stock, but we like the growth that we have been seeing. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.

The Dividend Could Prove To Be Unreliable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Krispy Kreme that investors should know about before committing capital to this stock. Is Krispy Kreme not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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