There's A Lot To Like About Fresh Del Monte Produce's (NYSE:FDP) Upcoming US$0.10 Dividend

Readers hoping to buy Fresh Del Monte Produce Inc. (NYSE:FDP) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Fresh Del Monte Produce's shares on or after the 18th of May will not receive the dividend, which will be paid on the 11th of June.

The company's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Looking at the last 12 months of distributions, Fresh Del Monte Produce has a trailing yield of approximately 1.1% on its current stock price of $35.38. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Fresh Del Monte Produce has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Fresh Del Monte Produce

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fresh Del Monte Produce paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Fresh Del Monte Produce generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 24% of its cash flow last year.

It's positive to see that Fresh Del Monte Produce's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Fresh Del Monte Produce paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Fresh Del Monte Produce earnings per share are up 7.1% per annum over the last five years. Earnings per share have been growing at a decent rate, and the company is retaining more than three-quarters of its earnings in the business. If profits are reinvested effectively, this could be a bullish combination for future earnings and dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Fresh Del Monte Produce has delivered 7.2% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy Fresh Del Monte Produce for the upcoming dividend? Earnings per share have been growing moderately, and Fresh Del Monte Produce is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Fresh Del Monte Produce is halfway there. It's a promising combination that should mark this company worthy of closer attention.

In light of that, while Fresh Del Monte Produce has an appealing dividend, it's worth knowing the risks involved with this stock. In terms of investment risks, we've identified 2 warning signs with Fresh Del Monte Produce and understanding them should be part of your investment process.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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