Tiger Brands' (JSE:TBS) Dividend Will Be ZAR3.50

The board of Tiger Brands Limited (JSE:TBS) has announced that it will pay a dividend of ZAR3.50 per share on the 8th of July. This makes the dividend yield about the same as the industry average at 5.1%.

View our latest analysis for Tiger Brands

Tiger Brands' Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last dividend, Tiger Brands is earning enough to cover the payment, but then it makes up 149% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Over the next year, EPS is forecast to expand by 18.3%. If the dividend continues on this path, the payout ratio could be 47% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ZAR8.65 in 2014 to the most recent total annual payment of ZAR10.21. This implies that the company grew its distributions at a yearly rate of about 1.7% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

Tiger Brands May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 3.1% per annum over the last five years, which admittedly is a bit slow. Growth of 3.1% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On Tiger Brands' Dividend

Overall, we always like to see the dividend being raised, but we don't think Tiger Brands will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think Tiger Brands is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for Tiger Brands that investors should take into consideration. 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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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.

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