The board of The Cheesecake Factory Incorporated (NASDAQ:CAKE) has announced that it will pay a dividend on the 4th of June, with investors receiving $0.27 per share. This means the annual payment is 2.9% of the current stock price, which is above the average for the industry.

View our latest analysis for Cheesecake Factory

Cheesecake Factory's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite comfortably covered by Cheesecake Factory's earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 81% indicates it is more focused on returning cash to shareholders than growing the business.

Looking forward, earnings per share is forecast to rise by 75.9% over the next year. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from $0.56 total annually to $1.08. This means that it has been growing its distributions at 6.8% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Cheesecake Factory might have put its house in order since then, but we remain cautious.

The Dividend's Growth Prospects Are Limited

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, Cheesecake Factory's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

Our Thoughts On Cheesecake Factory's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Cheesecake Factory is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 3 warning signs for Cheesecake Factory that investors should know about before committing capital to this stock. 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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