Darden Restaurants (NYSE:DRI) Is Increasing Its Dividend To $1.40

Darden Restaurants, Inc. (NYSE:DRI) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of August to $1.40. This takes the dividend yield to 3.7%, which shareholders will be pleased with.

See our latest analysis for Darden Restaurants

Darden Restaurants' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Darden Restaurants' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 36.8% over the next year. If the dividend continues on this path, the payout ratio could be 49% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was $2.20 in 2014, and the most recent fiscal year payment was $5.60. This means that it has been growing its distributions at 9.8% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Has Growth Potential

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. Darden Restaurants has seen EPS rising for the last five years, at 8.2% per annum. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

Darden Restaurants Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Darden Restaurants is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Darden Restaurants that investors should know about before committing capital to this stock. 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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