Kraft Heinz (NASDAQ:KHC) Has Affirmed Its Dividend Of $0.40

The board of The Kraft Heinz Company (NASDAQ:KHC) has announced that it will pay a dividend of $0.40 per share on the 30th of June. The dividend yield will be 3.9% based on this payment which is still above the industry average.

Check out our latest analysis for Kraft Heinz

Kraft Heinz's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Kraft Heinz's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 131% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS is forecast to expand by 62.6%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 46% which brings it into quite a comfortable range.

Kraft Heinz's Dividend Has Lacked Consistency

Kraft Heinz has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the annual payment back then was $2.30, compared to the most recent full-year payment of $1.60. The dividend has shrunk at around 5.1% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Kraft Heinz's EPS has declined at around 26% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Kraft Heinz's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 3 warning signs for Kraft Heinz that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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