J&J Snack Foods' (NASDAQ:JJSF) Dividend Will Be US$0.63

The board of J&J Snack Foods Corp. (NASDAQ:JJSF) has announced that it will pay a dividend on the 11th of July, with investors receiving US$0.63 per share. This payment means that the dividend yield will be 2.0%, which is around the industry average.

View our latest analysis for J&J Snack Foods

J&J Snack Foods' Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, J&J Snack Foods was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

The next year is set to see EPS grow by 13.8%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 75% which brings it into quite a comfortable range.

J&J Snack Foods Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from US$0.47 to US$2.53. This implies that the company grew its distributions at a yearly rate of about 18% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though J&J Snack Foods' EPS has declined at around 4.7% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

J&J Snack Foods' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for J&J Snack Foods that investors should know about before committing capital to this stock. Is J&J Snack Foods not quite the opportunity you were looking for? Why not check out our selection of top 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.