The Marcus Corporation (NYSE:MCS) will pay a dividend of $0.07 on the 16th of December. This means the annual payment is 1.3% of the current stock price, which is above the average for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Marcus' stock price has increased by 66% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Marcus

Estimates Indicate Marcus' Dividend Coverage Likely To Improve

A big dividend yield for a few years doesn't mean much if it can't be sustained. Even though Marcus isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

According to analysts, EPS should be several times higher next year. If the dividend extends its recent trend, estimates say the dividend could reach 26%, which we would be comfortable to see continuing.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was $0.34, compared to the most recent full-year payment of $0.28. The dividend has shrunk at around 1.9% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Company Could Face Some Challenges Growing The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Marcus has impressed us by growing EPS at 17% per year over the past five years. Unprofitable companies aren't normally our pick for a dividend stock, but we like the growth that we have been seeing. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Marcus that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.