Nathan's Famous, Inc. (NASDAQ:NATH) has announced that it will pay a dividend of $0.50 per share on the 28th of February. This means the dividend yield will be fairly typical at 2.4%.

See our latest analysis for Nathan's Famous

Nathan's Famous' Future Dividend Projections Appear Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Nathan's Famous was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

If the trend of the last few years continues, EPS will grow by 13.9% over the next 12 months. If the dividend continues on this path, the payout ratio could be 35% by next year, which we think can be pretty sustainable going forward.

Nathan's Famous Doesn't Have A Long Payment History

It is great to see that Nathan's Famous has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2018, the annual payment back then was $1.00, compared to the most recent full-year payment of $2.00. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Nathan's Famous has grown earnings per share at 14% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Nathan's Famous' prospects of growing its dividend payments in the future.

Nathan's Famous Looks Like A Great Dividend Stock

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Nathan's Famous that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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