Constellation Brands (NYSE:STZ) Is Increasing Its Dividend To $1.02

Constellation Brands, Inc. (NYSE:STZ) will increase its dividend from last year's comparable payment on the 15th of May to $1.02. Despite this raise, the dividend yield of 2.2% is only a modest boost to shareholder returns.

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Constellation Brands' Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Constellation Brands' Could Struggle to Maintain Dividend Payments In The Future

Constellation Brands' Future Dividends May Potentially Be At Risk

If it is predictable over a long period, even low dividend yields can be attractive. Constellation Brands is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Earnings per share is forecast to rise by 113.0% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

See our latest analysis for Constellation Brands

Constellation Brands Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.24 in 2015 to the most recent total annual payment of $4.08. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Constellation Brands Could Grow Its Dividend

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Constellation Brands has been growing its earnings per share at 5.3% a year over the past five years. Even though the company isn't making a profit, strong earnings growth could turn that around in the near future. As long as the company becomes profitable soon, it is on a trajectory that could see it being a solid dividend payer.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Constellation Brands 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Constellation Brands that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.