The board of The Wendy’s Company (NASDAQ:WEN) has announced a dividend payment of $0.25 per share on the 17th of June, resulting in a dividend yield of 5.6%. This is good news for investors as it will enhance their returns.
While a strong dividend yield is positive, it is important to assess the sustainability of the payment. Despite Wendy’s profits not covering the dividend in the last payment, the company’s healthy cash flows indicate that it can easily cover the dividend.
The company’s earnings per share (EPS) is expected to grow by 27.8% in the next year. If the dividend continues on its current trajectory, the payout ratio could reach 89%, which is on the higher side but still feasible.
Wendy’s has a history of dividend volatility, with the dividend being cut at least once in the past 10 years. However, the company has also shown growth in its distributions, increasing at a rate of about 17% annually over the same period.
Despite fluctuations in the dividend, growing earnings per share could help mitigate potential issues. Wendy’s EPS has declined by approximately 13% per year over the past five years, but is expected to rise in the next 12 months.
In summary, while Wendy’s dividend has not been cut, there are concerns about its sustainability in the long term. The company’s past dividend instability and declining EPS raise caution for investors focused on income. It is important to consider all factors before investing in a stock, including potential warning signs.
Valuation of Wendy’s is complex, but our comprehensive analysis provides fair value estimates, risks and warnings, dividends, insider transactions, and financial health. For more information, view the Free Analysis.
Please note that this article by Simply Wall St is based on historical data and analyst forecasts, and is not intended to be financial advice. It is important to conduct thorough research and consider your own financial situation before making investment decisions. Simply Wall St does not have a position in any stocks mentioned.