Nathan's Famous' (NASDAQ:NATH) Dividend Will Be Increased To US$0.45

Nathan's Famous, Inc. (NASDAQ:NATH) has announced that it will be increasing its dividend on the 4th of March to US$0.45, which will be 29% higher than last year. This takes the dividend yield from 2.4% to 2.6%, which shareholders will be pleased with.

View our latest analysis for Nathan's Famous

Nathan's Famous' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Nathan's Famous' dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Over the next year, EPS could expand by 13.7% if recent trends continue. If the dividend continues on this path, the payout ratio could be 50% by next year, which we think can be pretty sustainable going forward.

Nathan's Famous Is Still Building Its Track Record

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. Since 2018, the first annual payment was US$1.00, compared to the most recent full-year payment of US$1.40. This implies that the company grew its distributions at a yearly rate of about 8.8% over that duration. Nathan's Famous has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Nathan's Famous has grown earnings per share at 14% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

We Really Like Nathan's Famous' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing 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. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Nathan's Famous (of which 1 is potentially serious!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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