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Here's What We Like About Reynolds Consumer Products' (NASDAQ:REYN) Upcoming Dividend

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  • REYN

Reynolds Consumer Products Inc. (NASDAQ:REYN) stock is about to trade ex-dividend in 3 days. If you purchase the stock on or after the 13th of August, you won't be eligible to receive this dividend, when it is paid on the 31st of August.

Reynolds Consumer Products's next dividend payment will be US$0.22 per share. Last year, in total, the company distributed US$0.88 to shareholders. Last year's total dividend payments show that Reynolds Consumer Products has a trailing yield of 2.7% on the current share price of $32.51. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Reynolds Consumer Products has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Reynolds Consumer Products

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Reynolds Consumer Products is paying out just 23% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.

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.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. That's why we're optimistic about Reynolds Consumer Products's earnings, which have ripped higher, up 25% over the past year. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. Reynolds Consumer Products looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.

We'd also point out that Reynolds Consumer Products issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

This is Reynolds Consumer Products's first year of paying a dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.

The Bottom Line

Is Reynolds Consumer Products worth buying for its dividend? We love that Reynolds Consumer Products is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about Reynolds Consumer Products, and we would prioritise taking a closer look at it.

In light of that, while Reynolds Consumer Products has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 2 warning signs for Reynolds Consumer Products (1 is a bit unpleasant) you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.