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Is It Smart To Buy Flanigan's Enterprises, Inc. (NYSEMKT:BDL) Before It Goes Ex-Dividend?

Simply Wall St

Readers hoping to buy Flanigan's Enterprises, Inc. (NYSEMKT:BDL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 19th of March, you won't be eligible to receive this dividend, when it is paid on the 3rd of April.

The upcoming dividend for Flanigan's Enterprises will put a total of US$0.30 per share in shareholders' pockets, up from last year's total dividends of US$0.28. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Flanigan's Enterprises

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Flanigan's Enterprises paid out just 15% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 12% of its free cash flow in the last year.

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.

Click here to see how much of its profit Flanigan's Enterprises paid out over the last 12 months.

AMEX:BDL Historical Dividend Yield, March 15th 2020

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Flanigan's Enterprises, with earnings per share up 4.2% on average over the last five years. Flanigan's Enterprises is retaining more than three-quarters of its earnings and has a history of generating some growth in earnings. We think this is a reasonable combination.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Flanigan's Enterprises has delivered 13% dividend growth per year on average over the past nine years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is Flanigan's Enterprises an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Flanigan's Enterprises is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Flanigan's Enterprises is halfway there. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Flanigan's Enterprises has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 3 warning signs for Flanigan's Enterprises you should know about.

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.

