Kellogg's (NYSE:K) Dividend Will Be Increased To $0.60

Kellogg Company (NYSE:K) has announced that it will be increasing its periodic dividend on the 15th of September to $0.60, which will be 1.7% higher than last year's comparable payment amount of $0.59. This takes the dividend yield to 3.5%, which shareholders will be pleased with.

See our latest analysis for Kellogg

Kellogg's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, the company's dividend was higher than its profits, and made up 77% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

The next year is set to see EPS grow by 81.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 55%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Kellogg Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $1.76 in 2013, and the most recent fiscal year payment was $2.36. This means that it has been growing its distributions at 3.0% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth May Be Hard To Come By

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Over the past five years, it looks as though Kellogg's EPS has declined at around 10.0% 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.

Kellogg's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Kellogg's payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think Kellogg is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 4 warning signs for Kellogg that investors need to be conscious of moving forward. Is Kellogg not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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