Readers hoping to buy The Cheesecake Factory Incorporated (NASDAQ:CAKE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase Cheesecake Factory's shares on or after the 14th of May will not receive the dividend, which will be paid on the 27th of May.

The company's next dividend payment will be US$0.27 per share. Last year, in total, the company distributed US$1.08 to shareholders. Looking at the last 12 months of distributions, Cheesecake Factory has a trailing yield of approximately 2.2% on its current stock price of US$49.92. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Cheesecake Factory paying out a modest 33% of its earnings. A useful secondary check can be to evaluate whether Cheesecake Factory generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 47% of the free cash flow it generated, which is a comfortable payout ratio.

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.

See our latest analysis for Cheesecake Factory

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.NasdaqGS:CAKE Historic Dividend May 9th 2025

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Cheesecake Factory's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings per share growth in recent times has not been a standout. 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.

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Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Cheesecake Factory has delivered 6.8% dividend growth per year on average over the past 10 years.

The Bottom Line

Should investors buy Cheesecake Factory for the upcoming dividend? Earnings per share have been flat over this time, but we're intrigued to see that Cheesecake Factory is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Cheesecake Factory is halfway there. Cheesecake Factory looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

So while Cheesecake Factory looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 3 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.

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