Readers hoping to buy Dine Brands Global, Inc. (NYSE:DIN) 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 the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Dine Brands Global's shares on or after the 19th of March will not receive the dividend, which will be paid on the 5th of April.
The company's next dividend payment will be US$0.51 per share, and in the last 12 months, the company paid a total of US$2.04 per share. Calculating the last year's worth of payments shows that Dine Brands Global has a trailing yield of 4.3% on the current share price of US$47.45. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Dine Brands Global has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Dine Brands Global paying out a modest 33% of its earnings. A useful secondary check can be to evaluate whether Dine Brands Global generated enough free cash flow to afford its dividend. Fortunately, it paid out only 34% of its free cash flow in the past year.
It's positive to see that Dine Brands Global's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Dine Brands Global, with earnings per share up 7.0% on average 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. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Dine Brands Global has seen its dividend decline 3.8% per annum on average over the past 10 years, which is not great to see. Dine Brands Global is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Final Takeaway
Should investors buy Dine Brands Global for the upcoming dividend? Earnings per share growth has been growing somewhat, and Dine Brands Global 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. It might be nice to see earnings growing faster, but Dine Brands Global is being conservative with its dividend payouts and could still perform reasonably over the long run. Dine Brands Global looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Dine Brands Global for the dividends alone, you should always be mindful of the risks involved. Be aware that Dine Brands Global is showing 3 warning signs in our investment analysis, and 2 of those are potentially serious...
If you're in the market for strong dividend payers, we recommend checking our selection of top 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.