Tiger Brands' (JSE:TBS) Dividend Will Be R3.20

The board of Tiger Brands Limited (JSE:TBS) has announced that it will pay a dividend of R3.20 per share on the 4th of July. This means the dividend yield will be fairly typical at 5.6%.

Check out our latest analysis for Tiger Brands

Tiger Brands' Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Tiger Brands' dividend made up quite a large proportion of earnings but only 70% of free cash flows. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 31.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 54% which would be quite comfortable going to take the dividend forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was R7.91, compared to the most recent full-year payment of R10.12. This means that it has been growing its distributions at 2.5% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Tiger Brands' earnings per share has shrunk at 11% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Tiger Brands' payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

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. As an example, we've identified 1 warning sign for Tiger Brands that you should be aware of before investing. Is Tiger Brands not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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