Dave & Buster’s Entertainment, Inc. (NASDAQ:PLAY) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 9th of January will not receive this dividend, which will be paid on the 10th of February.
Dave & Buster’s Entertainment’s upcoming dividend is US$0.16 a share, following on from the last 12 months, when the company distributed a total of US$0.64 per share to shareholders. Based on the last year’s worth of payments, Dave & Buster’s Entertainment stock has a trailing yield of around 1.6% on the current share price of $40.48. 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.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Dave & Buster’s Entertainment has a low and conservative payout ratio of just 21% of its income after tax. A useful secondary check can be to evaluate whether Dave & Buster’s Entertainment generated enough free cash flow to afford its dividend. It paid out 18% of its free cash flow as dividends last year, which is conservatively low.
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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s encouraging to see Dave & Buster’s Entertainment has grown its earnings rapidly, up 114% a year for the past five years. Dave & Buster’s Entertainment earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky “beep-beep”. We also like that it is reinvesting most of its profits in its business.’
Given that Dave & Buster’s Entertainment has only been paying a dividend for a year, there’s not much of a past history to draw insight from.
The Bottom Line
Is Dave & Buster’s Entertainment worth buying for its dividend? We love that Dave & Buster’s Entertainment is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It’s a promising combination that should mark this company worthy of closer attention.
Ever wonder what the future holds for Dave & Buster’s Entertainment? See what the 13 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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