Reynolds Consumer Products (NASDAQ:REYN) Will Pay A Dividend Of $0.23

The board of Reynolds Consumer Products Inc. (NASDAQ:REYN) has announced that it will pay a dividend of $0.23 per share on the 28th of November. Based on this payment, the dividend yield on the company's stock will be 3.7%, which is an attractive boost to shareholder returns.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Reynolds Consumer Products' Payment Could Potentially Have Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend was quite comfortably covered by Reynolds Consumer Products' earnings, but it was a bit tighter on the cash flow front. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.

Looking forward, earnings per share is forecast to rise by 35.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 51%, which is in the range that makes us comfortable with the sustainability of the dividend.

View our latest analysis for Reynolds Consumer Products

Reynolds Consumer Products Doesn't Have A Long Payment History

Reynolds Consumer Products' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of $0.60 in 2019 to the most recent total annual payment of $0.92. This works out to be a compound annual growth rate (CAGR) of approximately 7.4% a year over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider Reynolds Consumer Products to be a consistent dividend paying stock.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Reynolds Consumer Products has seen earnings per share falling at 4.1% 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. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Reynolds Consumer Products is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Reynolds Consumer Products 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.