Reynolds Consumer Products (NASDAQ:REYN) Is Due To Pay A Dividend Of $0.23

The board of Reynolds Consumer Products Inc. (NASDAQ:REYN) has announced that it will pay a dividend on the 28th of February, with investors receiving $0.23 per share. Based on this payment, the dividend yield on the company's stock will be 3.1%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Reynolds Consumer Products

Reynolds Consumer Products' Earnings Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Reynolds Consumer Products was paying out quite a large proportion of both earnings and cash flow, with the dividend being 107% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share is forecast to rise by 44.5% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 52% which would be quite comfortable going to take the dividend forward.

Reynolds Consumer Products Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2020, the annual payment back then was $0.60, compared to the most recent full-year payment of $0.92. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Reynolds Consumer Products has seen earnings per share falling at 8.9% per year over the last five years. 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.

Reynolds Consumer Products' Dividend Doesn't Look Sustainable

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 track record isn't great, and the payments are a bit high to be considered sustainable. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Reynolds Consumer Products has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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