Shares of The Cheesecake Factory Incorporated (NASDAQ:CAKE) will begin trading ex-dividend in 4 days. To qualify for the dividend check of US$0.33 per share, investors must have owned the shares prior to 13 November 2018, which is the last day the company’s management will finalize their list of shareholders to which they will send dividend payments. Is this future income a persuasive enough catalyst for investors to think about Cheesecake Factory as an investment today? Below, I’m going to look at the latest data and analyze the stock and its dividend property in further detail.
See our latest analysis for Cheesecake Factory
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Cheesecake Factory fit our criteria?
Cheesecake Factory has a trailing twelve-month payout ratio of 39%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect CAKE’s payout to increase to 53% of its earnings, which leads to a dividend yield of around 2.6%. However, EPS is forecasted to fall to $2.62 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Cheesecake Factory as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Cheesecake Factory generates a yield of 2.6%, which is on the low-side for Hospitality stocks.
Taking all the above into account, Cheesecake Factory is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three essential aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for CAKE’s future growth? Take a look at our free research report of analyst consensus for CAKE’s outlook.
- Valuation: What is CAKE worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether CAKE is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.
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