Fresh Del Monte Produce's (NYSE:FDP) Dividend Will Be $0.15

The board of Fresh Del Monte Produce Inc. (NYSE:FDP) has announced that it will pay a dividend of $0.15 per share on the 31st of March. The dividend yield is 1.9% based on this payment, which is a little bit low compared to the other companies in the industry.

Check out our latest analysis for Fresh Del Monte Produce

Fresh Del Monte Produce's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Fresh Del Monte Produce was paying a whopping 210% as a dividend, but this only made up 29% of its overall earnings. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 3.3%. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $0.40 in 2013, and the most recent fiscal year payment was $0.60. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Fresh Del Monte Produce May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Over the past five years, it looks as though Fresh Del Monte Produce's EPS has declined at around 3.0% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. 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 good to see that the dividend hasn't been cut, we are a bit cautious about Fresh Del Monte Produce's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Fresh Del Monte Produce that investors should know about before committing capital to this stock. Is Fresh Del Monte Produce not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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