Income Investors Should Know That Nathan's Famous, Inc. (NASDAQ:NATH) Goes Ex-Dividend Soon

Nathan's Famous, Inc. (NASDAQ:NATH) stock is about to trade ex-dividend in four days. Investors can purchase shares before the 19th of February in order to be eligible for this dividend, which will be paid on the 5th of March.

Nathan's Famous's next dividend payment will be US$0.35 per share, and in the last 12 months, the company paid a total of US$1.40 per share. Calculating the last year's worth of payments shows that Nathan's Famous has a trailing yield of 2.3% on the current share price of $60.12. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Nathan's Famous has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Nathan's Famous

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Nathan's Famous's payout ratio is modest, at just 47% of profit. A useful secondary check can be to evaluate whether Nathan's Famous generated enough free cash flow to afford its dividend. Over the last year it paid out 55% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see how much of its profit Nathan's Famous paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Nathan's Famous, with earnings per share up 2.5% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past three years, Nathan's Famous has increased its dividend at approximately 12% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Nathan's Famous worth buying for its dividend? Earnings per share growth has been modest, and it's interesting that Nathan's Famous is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. In summary, it's hard to get excited about Nathan's Famous from a dividend perspective.

In light of that, while Nathan's Famous has an appealing dividend, it's worth knowing the risks involved with this stock. For example, Nathan's Famous has 4 warning signs (and 2 which make us uncomfortable) we think you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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