FAT Brands' (NASDAQ:FAT) Dividend Will Be $0.14

The board of FAT Brands Inc. (NASDAQ:FAT) has announced that it will pay a dividend of $0.14 per share on the 1st of September. The dividend yield will be 8.3% based on this payment which is still above the industry average.

See our latest analysis for FAT Brands

FAT Brands' Distributions May Be Difficult To Sustain

If the payments aren't sustainable, a high yield for a few years won't matter that much. Even though FAT Brands is not generating a profit, it is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Over the next year, EPS is forecast to expand by 40.2%. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unless this happens fairly soon, the dividend could start to come under pressure.

FAT Brands' Dividend Has Lacked Consistency

It's comforting to see that FAT Brands has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of $0.382 in 2018 to the most recent total annual payment of $0.56. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. FAT Brands might have put its house in order since then, but we remain cautious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. FAT Brands' EPS has fallen by approximately 74% per year during the past five years. 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.

FAT Brands' Dividend Doesn't Look Great

Overall, while some might be pleased that the dividend wasn't cut, we think this may help FAT Brands make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. We don't think that this is a great candidate to be an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 5 warning signs for FAT Brands (of which 3 shouldn't be ignored!) you should know about. Is FAT Brands not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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