Texas Roadhouse's (NASDAQ:TXRH) Dividend Will Be Increased To $0.68

The board of Texas Roadhouse, Inc. (NASDAQ:TXRH) has announced that it will be paying its dividend of $0.68 on the 1st of April, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

View our latest analysis for Texas Roadhouse

Texas Roadhouse's Payment Could Potentially Have Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Texas Roadhouse was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 31.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.60 in 2015 to the most recent total annual payment of $2.72. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Texas Roadhouse has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Texas Roadhouse has seen EPS rising for the last five years, at 21% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

We Really Like Texas Roadhouse's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. For example, we've picked out 1 warning sign for Texas Roadhouse that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.