Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
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 paid dividends to shareholders, and these days it yields 1.8%. Let’s dig deeper into whether Ruth’s Hospitality Group should have a place in your portfolio.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% 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?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How does Ruth’s Hospitality Group fare?
Ruth’s Hospitality Group has a trailing twelve-month payout ratio of 34%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect RUTH’s payout to fall to 29% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.8%. However, EPS should increase to $1.45, 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. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view Ruth’s Hospitality Group as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Ruth’s Hospitality Group generates a yield of 1.8%, 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, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three essential 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. On rare occasion, data errors may occur. Thank you for reading.