Nathan's Famous: A Steady Income Play with Room to Grow

Nathan's Famous, Inc. (NASDAQ: NATH), a purveyor of classic American hot dogs and a leader in branded food licensing, presents an intriguing investment opportunity for income-focused investors seeking both dividend stability and growth potential. The company's consistent dividend hikes, robust royalty revenue from its partnership with Smithfield Foods, and demonstrated margin resilience amid inflation underscore its appeal. Let's unpack the key factors supporting this thesis.

Dividend Sustainability: A Reliable Income Stream

Nathan's Famous has maintained a disciplined approach to dividends, increasing its quarterly payout to $0.50 per share in early 2023—its first hike in three years—and has sustained this level ever since. Over the past two years, the dividend yield has hovered around 1.8%, offering modest but reliable income for investors.

The dividend's sustainability is underpinned by a 34.5% payout ratio in 2024, calculated as annual dividends ($2.00) divided by diluted earnings per share ($5.80). This leaves ample room for future hikes, especially as the company generates consistent free cash flow. A would show a steady trajectory, reinforcing its reliability.

Royalty Revenue Growth: The Smithfield Partnership

The cornerstone of Nathan's growth strategy lies in its 15-year licensing agreement with Smithfield Foods, which distributes Nathan's Famous hot dogs to retailers nationwide. This partnership has driven 13% year-over-year growth in royalties to $26.75 million through the first nine months of fiscal 2025 (ended December 2024), compared to $23.58 million in the same period in 2023.

Historically, Smithfield-related royalties have been a consistent growth engine. In fiscal 2022, they totaled $28.97 million, rising to $29.998 million in fiscal 2023 before the 2024 increase. This scalability stems from Nathan's ability to leverage Smithfield's distribution network while avoiding capital-intensive production costs. A would highlight this steady expansion.

Margin Resilience: Managing Inflationary Pressures

Despite rising beef costs—up 4% in fiscal 2025—the company has preserved margins through price increases and operational efficiency. The Branded Product Program, which includes hot dogs sold under Nathan's name, saw income from operations dip slightly to $5.4 million due to input cost pressures. However, the broader licensing segment thrived, with total license royalties hitting $29.5 million in the first nine months of 2025, up from $26.08 million in 2023.

Adjusted EBITDA reflects this resilience: it rose to $32.11 million in the first nine months of 2025, a 16.5% increase from the prior-year period. This metric, which excludes non-cash expenses and one-time items, highlights Nathan's ability to grow profitability despite inflation. A would visually reinforce this strength.

Scalability: Licensing and Franchise Expansion

Nathan's licensing model is inherently scalable. With minimal capital expenditure required beyond marketing, the company can expand its reach through partnerships like the one with Smithfield. Additionally, its franchise segment, though smaller, offers incremental growth. While franchise fees dipped slightly to $294,000 in 2025 (from $325,000 in 2023), the focus remains on maintaining brand consistency and expanding geographic presence.

The licensing model's scalability is further evidenced by its contribution to 85% of total revenue in recent years. This focus on high-margin licensing positions Nathan's to outperform peers in a cost-constrained environment.

Risks to Consider

• Beef Cost Volatility: Rising beef prices could continue to pressure margins, though Nathan's has shown willingness to pass costs to consumers.
• Smithfield Dependency: The partnership accounts for nearly 90% of licensing revenue, making Nathan's vulnerable to any disruption in the relationship.
• Consumer Demand: A shift away from hot dog consumption or competition from private-label brands could erode pricing power.

Investment Thesis

Nathan's Famous offers a compelling blend of income stability and moderate growth. Its dividend is well-covered, and the Smithfield partnership provides a predictable revenue stream with room for further expansion. Adjusted EBITDA growth and disciplined capital allocation suggest management is focused on maximizing shareholder returns.

For investors seeking a dividend-paying stock with inflation-resistant characteristics, Nathan's is worth considering. The 1.8% dividend yield and the potential for steady royalty growth make it a solid core holding. However, investors should monitor beef cost trends and the Smithfield partnership's performance closely.

In conclusion, Nathan's Famous stands out as a conservative growth play with a proven model for income generation and margin resilience. While not a high-flying stock, its stability and scalability make it a prudent choice for portfolios seeking steady returns.