Is Cheesecake Factory's 7% Dividend Yield Safe?

Things could be better for the restaurant industry, one of the segments of the economy hardest hit by the COVID-19 pandemic. Many operators -- large and small -- have been reduced to primarily takeout and delivery-only business or even full closures. Already working with thin profit margins, that has put many companies under extreme pressure.

One such outfit is The Cheesecake Factory (NASDAQ: CAKE), which recently provided a shareholder update on operations. The good news is that off-premise sales already made up a substantial part of the company's revenue: 17% during the fourth quarter of 2019, to be exact. And industry researcher Black Box Intelligence reports that average off-premise sales for full-service restaurants increased 60% as of March 23 compared with a year ago.

The bad news, though, is that 27 of Cheesecake Factory's nearly 300 locations are completely closed until further notice. The chain has also needed to use short-term credit, adding to the already notable liabilities it incurred last year to acquire North Italia and Fox Restaurant Concepts during Q4 2019 -- which, incidentally, make up many of the company's 27 currently closed stores (only two of the closures are Cheesecake Factories). As of this writing, The Cheesecake Factory's dividend yields 7.3% a year, but value investors probably shouldn't make a purchase based on that payout.

Source Fool.com