Kontoor Brands (NYSE:KTB) Has Announced That It Will Be Increasing Its Dividend To $0.48

The board of Kontoor Brands, Inc. (NYSE:KTB) has announced that it will be paying its dividend of $0.48 on the 19th of December, an increased payment from last year's comparable dividend. This makes the dividend yield 4.5%, which is above the industry average.

Check out the opportunities and risks within the US Luxury industry.

Kontoor Brands' Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last dividend, Kontoor Brands is earning enough to cover the payment, but then it makes up 178% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Over the next year, EPS is forecast to expand by 16.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 45% by next year, which is in a pretty sustainable range.

Kontoor Brands' Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. Since 2019, the annual payment back then was $2.24, compared to the most recent full-year payment of $1.92. This works out to be a decline of approximately 5.0% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. We are encouraged to see that Kontoor Brands has grown earnings per share at 16% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

Our Thoughts On Kontoor Brands' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Kontoor Brands you should be aware of, and 2 of them are concerning. Is Kontoor Brands not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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