The Wendy's Company's (NASDAQ:WEN) investors are due to receive a payment of $0.125 per share on 15th of September. Based on this payment, the dividend yield on the company's stock will be 2.3%, which is an attractive boost to shareholder returns.
Wendy's' Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Wendy's was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to expand by 47.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 44%, which is in the range that makes us comfortable with the sustainability of the dividend.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the annual payment back then was $0.08, compared to the most recent full-year payment of $0.50. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Wendy's has impressed us by growing EPS at 17% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.
Wendy's Looks Like A Great Dividend Stock
Overall, we like to see the dividend staying consistent, and we think Wendy's might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Wendy's has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of 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.
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