Brown-Forman's (NYSE:BF.B) Dividend Will Be Increased To $0.2055

Brown-Forman Corporation (NYSE:BF.B) has announced that it will be increasing its dividend from last year's comparable payment on the 3rd of January to $0.2055. Despite this raise, the dividend yield of 1.1% is only a modest boost to shareholder returns.

Check out the opportunities and risks within the US Beverage industry.

Brown-Forman's Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Brown-Forman's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 34.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 32% by next year, which is in a pretty sustainable range.

Brown-Forman Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.373 in 2012, and the most recent fiscal year payment was $0.754. This implies that the company grew its distributions at a yearly rate of about 7.3% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Brown-Forman Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Brown-Forman has been growing its earnings per share at 5.1% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

We Really Like Brown-Forman's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Brown-Forman that investors should take into consideration. Is Brown-Forman not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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