Here's What We Like About Kontoor Brands' (NYSE:KTB) Upcoming Dividend
It looks like Kontoor Brands, Inc. (NYSE:KTB) is about to go ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Meaning, you will need to purchase Kontoor Brands' shares before the 7th of March to receive the dividend, which will be paid on the 18th of March.
The company's next dividend payment will be US$0.46 per share, on the back of last year when the company paid a total of US$1.84 to shareholders. Based on the last year's worth of payments, Kontoor Brands stock has a trailing yield of around 4.1% on the current share price of $44.96. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Kontoor Brands
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Kontoor Brands paid out a comfortable 47% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 33% of its free cash flow in the past year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Kontoor Brands's earnings per share have risen 18% per annum over the last five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Kontoor Brands's dividend payments per share have declined at 6.3% per year on average over the past three years, which is uninspiring. Kontoor Brands is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Final Takeaway
Is Kontoor Brands worth buying for its dividend? It's great that Kontoor Brands is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Kontoor Brands, and we would prioritise taking a closer look at it.
In light of that, while Kontoor Brands has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 3 warning signs for Kontoor Brands you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
