Kraft Heinz's (NASDAQ:KHC) Dividend Will Be $0.40

The Kraft Heinz Company's (NASDAQ:KHC) investors are due to receive a payment of $0.40 per share on 31st of March. This means the annual payment is 4.0% of the current stock price, which is above the average for the industry.

View our latest analysis for Kraft Heinz

Kraft Heinz's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Kraft Heinz was paying out quite a large proportion of both earnings and cash flow, with the dividend being 126% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

The next year is set to see EPS grow by 62.1%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 47% which would be quite comfortable going to take the dividend forward.

Kraft Heinz's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The annual payment during the last 7 years was $2.30 in 2016, and the most recent fiscal year payment was $1.60. Doing the maths, this is a decline of about 5.1% per year. 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

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Kraft Heinz's EPS has fallen by approximately 26% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

The Dividend Could Prove To Be Unreliable

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

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for Kraft Heinz that investors should take into consideration. 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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