Yahoo Finance Do These 3 Checks Before Buying Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) For Its Upcoming Dividend
Readers hoping to buy Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Cracker Barrel Old Country Store's shares on or after the 11th of April, you won't be eligible to receive the dividend, when it is paid on the 7th of May.
The company's next dividend payment will be US$1.30 per share, on the back of last year when the company paid a total of US$5.20 to shareholders. Based on the last year's worth of payments, Cracker Barrel Old Country Store has a trailing yield of 8.1% on the current stock price of US$64.23. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Cracker Barrel Old Country Store
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Cracker Barrel Old Country Store paid out 138% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the past year it paid out 141% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Cash is slightly more important than profit from a dividend perspective, but given Cracker Barrel Old Country Store's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Cracker Barrel Old Country Store's earnings per share have dropped 18% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Cracker Barrel Old Country Store has lifted its dividend by approximately 5.7% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Cracker Barrel Old Country Store is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
Final Takeaway
Is Cracker Barrel Old Country Store worth buying for its dividend? Not only are earnings per share declining, but Cracker Barrel Old Country Store is paying out an uncomfortably high percentage of both its earnings and cashflow to shareholders as dividends. This is a starkly negative combination that often suggests a dividend cut could be in the company's near future. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
So if you're still interested in Cracker Barrel Old Country Store despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To that end, you should learn about the 2 warning signs we've spotted with Cracker Barrel Old Country Store (including 1 which is a bit unpleasant).
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
