It looks like The Cheesecake Factory Incorporated (NASDAQ:CAKE) is about to go ex-dividend in the next three days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Cheesecake Factory's shares before the 5th of March in order to receive the dividend, which the company will pay on the 18th of March.

The company's upcoming dividend is US$0.27 a share, following on from the last 12 months, when the company distributed a total of US$1.08 per share to shareholders. Last year's total dividend payments show that Cheesecake Factory has a trailing yield of 2.0% on the current share price of US$54.03. If you buy this business for its dividend, you should have an idea of whether Cheesecake Factory's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Cheesecake Factory

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Cheesecake Factory paid out a comfortable 33% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 50% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that Cheesecake Factory'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 with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Cheesecake Factory's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Cheesecake Factory has lifted its dividend by approximately 6.8% a year on average.

Final Takeaway

Should investors buy Cheesecake Factory for the upcoming dividend? The company has barely grown earnings per share over this time, but at least it's paying out a decently low percentage of its earnings and cashflow as dividends. This could suggest management is reinvesting in future growth opportunities. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine strong earnings per share growth with a low payout ratio, and Cheesecake Factory is halfway there. There's a lot to like about Cheesecake Factory, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 2 warning signs with Cheesecake Factory and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.