Wendy's (NASDAQ:WEN) Has Announced A Dividend Of $0.25

The Wendy's Company (NASDAQ:WEN) will pay a dividend of $0.25 on the 15th of March. Based on this payment, the dividend yield on the company's stock will be 5.4%, which is an attractive boost to shareholder returns.

See our latest analysis for Wendy's

Wendy's' Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the dividend made up 79% of cash flows, but a higher proportion of net income. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

The next year is set to see EPS grow by 60.9%. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was $0.16, compared to the most recent full-year payment of $1.00. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. Wendy's 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.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Wendy's' earnings per share has shrunk at 12% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Wendy's' payments, as there could be some issues with sustaining them into the future. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Wendy's you should be aware of, and 1 of them is concerning. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.