Stock Analysis

Lancaster Colony (NASDAQ:LANC) Is Increasing Its Dividend To $0.85

NasdaqGS:LANC
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Lancaster Colony Corporation (NASDAQ:LANC) will increase its dividend from last year's comparable payment on the 31st of March to $0.85. This takes the annual payment to 1.8% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Lancaster Colony

Lancaster Colony's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. At the time of the last dividend payment, Lancaster Colony was paying out a very large proportion of what it was earning and 119% 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 34.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 72%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

historic-dividend
NasdaqGS:LANC Historic Dividend February 26th 2023

Lancaster Colony Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $1.44 in 2013, and the most recent fiscal year payment was $3.40. This means that it has been growing its distributions at 9.0% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

Lancaster Colony May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. It's not great to see that Lancaster Colony's earnings per share has fallen at approximately 3.0% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Lancaster Colony's payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Lancaster Colony 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.