Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Ruth’s Hospitality Group Inc (NASDAQ:RUTH) has been paying a dividend to shareholders. Today it yields 1.5%. Let’s dig deeper into whether Ruth’s Hospitality Group should have a place in your portfolio.
5 checks you should do on a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has it increased its dividend per share amount over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How does Ruth’s Hospitality Group fare?
Ruth’s Hospitality Group has a trailing twelve-month payout ratio of 35%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect RUTH’s payout to fall to 29% of its earnings, which leads to a dividend yield of around 1.5%. However, EPS should increase to $1.43, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider Ruth’s Hospitality Group as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Ruth’s Hospitality Group generates a yield of 1.5%, which is on the low-side for Hospitality stocks.
Taking all the above into account, Ruth’s Hospitality Group is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three key factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for RUTH’s future growth? Take a look at our free research report of analyst consensus for RUTH’s outlook.
- Valuation: What is RUTH worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether RUTH is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.