Kraft Heinz (NASDAQ:KHC) Is Paying Out A Dividend Of $0.40

The Kraft Heinz Company (NASDAQ:KHC) will pay a dividend of $0.40 on the 27th of September. The dividend yield will be 4.5% based on this payment which is still above the industry average.

See our latest analysis for Kraft Heinz

Kraft Heinz's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Kraft Heinz's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

The next year is set to see EPS grow by 120.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 44%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Kraft Heinz's Dividend Has Lacked Consistency

It's comforting to see that Kraft Heinz has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2015, the annual payment back then was $2.30, compared to the most recent full-year payment of $1.60. Doing the maths, this is a decline of about 4.0% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Kraft Heinz's Dividend Might Lack Growth

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Kraft Heinz has impressed us by growing EPS at 61% per year over the past five years. Strong earnings is nice to see, but unless this can be sustained on minimal reinvestment of profits, we would question whether dividends will follow suit.

Our Thoughts On Kraft Heinz's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Kraft Heinz's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing 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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