Stock Analysis
The Wendy's Company (NASDAQ:WEN) has announced that it will pay a dividend of $0.125 per share on the 15th of December. This makes the dividend yield 2.2%, which will augment investor returns quite nicely.
Check out the opportunities and risks within the US Hospitality industry.
Wendy's' Dividend Is Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Wendy's' earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Over the next year, EPS is forecast to expand by 47.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 42% by next year, which is in a pretty sustainable range.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the annual payment back then was $0.08, compared to the most recent full-year payment of $0.50. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Wendy's has been growing its earnings per share at 28% a year over the past five years. Wendy's is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
We Really Like Wendy's' Dividend
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 2 warning signs for Wendy's you should be aware of, and 1 of them shouldn't be ignored. Is Wendy's not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
What are the risks and opportunities for Wendy's?
The Wendy's Company, together with its subsidiaries, operates as a quick-service restaurant company.
Rewards
Earnings are forecast to grow 11.98% per year
Risks
Interest payments are not well covered by earnings
Further research on
Wendy's
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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.
About NasdaqGS:WEN
Wendy's
The Wendy's Company, together with its subsidiaries, operates as a quick-service restaurant company.
Average dividend payer with questionable track record.
