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Ruth's Hospitality Group, Inc. (NASDAQ:RUTH) Looks Interesting, And It's About To Pay A Dividend

Readers hoping to buy Ruth's Hospitality Group, Inc. (NASDAQ:RUTH) 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. In other words, investors can purchase Ruth's Hospitality Group's shares before the 18th of August in order to be eligible for the dividend, which will be paid on the 2nd of September.

The company's next dividend payment will be US$0.14 per share, and in the last 12 months, the company paid a total of US$0.56 per share. Looking at the last 12 months of distributions, Ruth's Hospitality Group has a trailing yield of approximately 2.8% on its current stock price of $20.08. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Ruth's Hospitality Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Ruth's Hospitality Group has a low and conservative payout ratio of just 21% of its income after tax. 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. Thankfully its dividend payments took up just 36% of the free cash flow it generated, which is a comfortable payout ratio.

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It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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historic-dividend

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Ruth's Hospitality Group earnings per share are up 5.5% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last nine years, Ruth's Hospitality Group has lifted its dividend by approximately 15% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Ruth's Hospitality Group? Earnings per share growth has been growing somewhat, and Ruth's Hospitality Group is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Ruth's Hospitality Group is halfway there. There's a lot to like about Ruth's Hospitality Group, and we would prioritise taking a closer look at it.

On that note, you'll want to research what risks Ruth's Hospitality Group is facing. For example - Ruth's Hospitality Group has 1 warning sign we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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.

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