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Flowers Foods (NYSE:FLO) Will Pay A Larger Dividend Than Last Year At $0.23

Flowers Foods, Inc.'s (NYSE:FLO) periodic dividend will be increasing on the 22nd of June to $0.23, with investors receiving 4.5% more than last year's $0.22. This will take the dividend yield to an attractive 3.4%, providing a nice boost to shareholder returns.

See our latest analysis for Flowers Foods

Flowers Foods' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Flowers Foods' dividend was only 66% of earnings, however it was paying out 131% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 30.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 72%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
historic-dividend

Flowers Foods Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.427 in 2013 to the most recent total annual payment of $0.88. This works out to be a compound annual growth rate (CAGR) of approximately 7.5% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Flowers Foods has been growing its earnings per share at 8.5% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Flowers Foods will make a great income stock. While Flowers Foods is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Flowers Foods that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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.

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