Just Three Days Till Kellogg Company (NYSE:K) Will Be Trading Ex-Dividend

Simply Wall St
February 24, 2022
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It looks like Kellogg Company (NYSE:K) is about to go ex-dividend in the next three days. 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 an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Kellogg's shares on or after the 28th of February, you won't be eligible to receive the dividend, when it is paid on the 15th of March.

The company's next dividend payment will be US$0.58 per share, and in the last 12 months, the company paid a total of US$2.32 per share. Looking at the last 12 months of distributions, Kellogg has a trailing yield of approximately 3.5% on its current stock price of $66.47. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Kellogg can afford its dividend, and if the dividend could grow.

See our latest analysis for Kellogg

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Kellogg is paying out an acceptable 53% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Kellogg generated enough free cash flow to afford its dividend. It paid out more than half (69%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Kellogg'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 the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:K Historic Dividend February 24th 2022

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Kellogg's earnings per share have risen 17% per annum over the last five years. Kellogg is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Kellogg has lifted its dividend by approximately 3.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Kellogg is keeping back more of its profits to grow the business.

To Sum It Up

Should investors buy Kellogg for the upcoming dividend? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we'd also note that Kellogg is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Kellogg's dividend merits.

So while Kellogg looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 2 warning signs for Kellogg and you should be aware of these before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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