Nathan’s Famous (NASDAQ:NATH) pays a dividend of $0.50

Nathan’s Famous, Inc. (NASDAQ:NATH) announced that it will declare a dividend of $0.50 per share on July 2. Based on this payment, the dividend yield on the company’s shares will be 3.0%, which represents an attractive increase in shareholder returns.

Check out our latest analysis for Nathan’s Famous

Nathan’s Famous’ payment has solid income coverage

If the payments aren’t sustainable, a high yield over a few years isn’t that important. Before this announcement, Nathan’s Famous’s dividend was comfortably covered by cash flow and earnings, suggesting that much of the profits are being reinvested in the business to fuel growth.

If recent trends continue, earnings per share will decline by 1.3% over the next 12 months. If the dividend follows recent trends, we estimate the payout ratio could be 49%, which we think is quite comfortable given that most of the company’s earnings are left for future business growth.

Nathan’s Famous does not have a long payment history

While the company has been paying a consistent dividend for some time, we’d be happy to wait a few more years before we can rely on it. The annual payment over the past 6 years was $1.00 in 2018 and the payment in the most recent fiscal year was $2.00. This means that payouts have grown 12% annually during that time. Nathan’s Famous has been increasing its dividend fairly quickly, which is exciting. However, the short payment history makes us doubt whether this performance will continue over a full market cycle.

Dividend growth may be difficult to achieve

Investors who have held shares in the company over the past few years will be pleased with the dividend income they have received. However, first impressions may be deceptive. Nathan’s Famous has not seen much change in earnings per share over the past five years.

Our thoughts on Nathan’s Famous’s dividend

In summary, while it’s good that the dividend hasn’t been cut, we’re a bit cautious about Nathan’s Famous’s payments as it could have problems maintaining them in the future. Payments haven’t been particularly stable and we don’t see much growth potential, but since the dividend is well covered by cash flows, it could prove reliable in the short term. Overall, we don’t think this company has what it takes to be a good dividend stock.

Market movements show how much a consistent dividend policy is valued compared to a more unpredictable one. Despite the importance of dividend payments, however, they are not the only factors our readers should know when evaluating a company. For example, we have selected the following companies: 3 warning signs for Nathan’s Famous investors should know before investing capital in this stock. Looking for more high yield dividend ideas? Try our Collection of strong dividend payers.

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