Flowers Foods, Inc.'s (NYSE:FLO) investors are due to receive a payment of US$0.21 per share on 17th of December. This payment means that the dividend yield will be 3.1%, which is around the industry average.
Flowers Foods' Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. Before this announcement, Flowers Foods was paying out 78% of earnings, but a comparatively small 64% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
Looking forward, earnings per share is forecast to rise by 13.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 74%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Flowers Foods Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from US$0.36 in 2011 to the most recent annual payment of US$0.84. This implies that the company grew its distributions at a yearly rate of about 9.0% 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.
Dividend Growth May Be Hard To Achieve
The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 3.8% per year. Flowers Foods' earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Flowers Foods that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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.
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