J&J Snack Foods (NASDAQ:JJSF) Has Announced That It Will Be Increasing Its Dividend To $0.70

J&J Snack Foods Corp.'s (NASDAQ:JJSF) dividend will be increasing from last year's payment of the same period to $0.70 on 11th of October. Even though the dividend went up, the yield is still quite low at only 1.9%.

View our latest analysis for J&J Snack Foods

J&J Snack Foods' Payment Has Solid Earnings Coverage

If it is predictable over a long period, even low dividend yields can be attractive. Before this announcement, J&J Snack Foods was paying out 99% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Over the next year, EPS is forecast to expand by 46.0%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 76% - on the higher side, but we wouldn't necessarily say this is unsustainable.

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 annual payment back then was $0.52, compared to the most recent full-year payment of $2.80. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. J&J Snack Foods has seen earnings per share falling at 8.8% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

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

In summary, while it's always good to see the dividend being raised, we don't think J&J Snack Foods' payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.

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 J&J Snack Foods you should be aware of, and 1 of them is concerning. 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.