Choice Hotels International, Inc. (NYSE:CHH) has announced that it will pay a dividend of $0.2875 per share on the 17th of April. This payment means the dividend yield will be 0.9%, which is below the average for the industry.

View our latest analysis for Choice Hotels International

Choice Hotels International's Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Choice Hotels International was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 51.4%. If the dividend continues on this path, the payout ratio could be 15% 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. The dividend has gone from an annual total of $0.74 in 2014 to the most recent total annual payment of $1.15. This implies that the company grew its distributions at a yearly rate of about 4.5% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

We Could See Choice Hotels International's Dividend Growing

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Choice Hotels International has seen EPS rising for the last five years, at 6.4% per annum. Choice Hotels International definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, we think Choice Hotels International is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Choice Hotels International 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.