Koninklijke Ahold Delhaize N.V. (AMS:AD) will increase its dividend on the 28th of April to €0.52. This will take the annual payment from 3.3% to 3.3% of the stock price, which is above what most companies in the industry pay.
Koninklijke Ahold Delhaize's Dividend Is Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Koninklijke Ahold Delhaize's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
EPS is set to fall by 2.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 48%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from €0.33 in 2012 to the most recent annual payment of €0.95. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. Koninklijke Ahold Delhaize has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
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. Koninklijke Ahold Delhaize has impressed us by growing EPS at 23% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Koninklijke Ahold Delhaize could prove to be a strong dividend payer.
Koninklijke Ahold Delhaize Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that Koninklijke Ahold Delhaize is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.
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. As an example, we've identified 1 warning sign for Koninklijke Ahold Delhaize that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.