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Flowers Foods, Inc.'s (NYSE:FLO) dividend will be increasing from last year's payment of the same period to $0.23 on 15th of December. This will take the annual payment to 4.4% of the stock price, which is above what most companies in the industry pay.
See our latest analysis for Flowers Foods
Flowers Foods' Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 140% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.
Flowers Foods Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.427 in 2013 to the most recent total annual payment of $0.92. This means that it has been growing its distributions at 8.0% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
Dividend Growth May Be Hard To Come By
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. In the last five years, Flowers Foods' earnings per share has shrunk at approximately 8.7% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think Flowers Foods' payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Flowers Foods is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Flowers Foods you should be aware of, and 1 of them shouldn't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.