Cal-Maine Foods (NASDAQ:CALM) Is Increasing Its Dividend To $3.46

Cal-Maine Foods, Inc. (NASDAQ:CALM) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of May to $3.46. This takes the annual payment to 2.0% of the current stock price, which unfortunately is below what the industry is paying.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Estimates Indicate Cal-Maine Foods' Could Struggle to Maintain Dividend Payments In The Future

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, Cal-Maine Foods' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 67.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 116%, which could put the dividend in jeopardy if the company's earnings don't improve.

See our latest analysis for Cal-Maine Foods

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $0.727 in 2015, and the most recent fiscal year payment was $1.89. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

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. We are encouraged to see that Cal-Maine Foods has grown earnings per share at 52% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Cal-Maine Foods' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Cal-Maine Foods (1 is concerning!) 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.