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 on the 7th of August, with investors receiving $0.035 per share. This means the annual payment will be 1.3% of the current stock price, which is lower than the industry average.

View our latest analysis for Krispy Kreme

Krispy Kreme's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. 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.

Looking forward, earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 7.8%, which makes us pretty comfortable with the sustainability of the dividend.

Krispy Kreme Is Still Building Its Track Record

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 most recent annual payment of $0.14 is about the same as the annual payment 3 years ago. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

The Company Could Face Some Challenges Growing The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Krispy Kreme has been growing its earnings per share at 28% a year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.

Krispy Kreme's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Krispy Kreme's payments, as there could be some issues with sustaining them into the future. 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. We don't think Krispy Kreme is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Krispy Kreme that you should be aware of before investing. 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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