Foot Locker's (NYSE:FL) Dividend Will Be $0.40

Foot Locker, Inc. (NYSE:FL) has announced that it will pay a dividend of $0.40 per share on the 27th of October. The dividend yield will be 6.3% based on this payment which is still above the industry average.

See our latest analysis for Foot Locker

Foot Locker's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Foot Locker's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.

The next year is set to see EPS grow by 38.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 46% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.72 in 2013 to the most recent total annual payment of $1.60. This means that it has been growing its distributions at 8.3% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 4.0% per year. Growth of 4.0% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

Our Thoughts On Foot Locker's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Foot Locker's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 2 warning signs for Foot Locker that investors should know about before committing capital to this stock. Is Foot Locker not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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