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Fresh Del Monte Produce Inc. (NYSE:FDP) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 11th of August in order to be eligible for this dividend, which will be paid on the 4th of September.
Fresh Del Monte Produce's next dividend payment will be US$0.05 per share. Last year, in total, the company distributed US$0.40 to shareholders. Last year's total dividend payments show that Fresh Del Monte Produce has a trailing yield of 1.7% on the current share price of $24.22. If you buy this business for its dividend, you should have an idea of whether Fresh Del Monte Produce's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Fresh Del Monte Produce is paying out an acceptable 58% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 11% of its free cash flow last 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.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Fresh Del Monte Produce's earnings per share have dropped 28% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Fresh Del Monte Produce has lifted its dividend by approximately 7.2% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
Should investors buy Fresh Del Monte Produce for the upcoming dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
However if you're still interested in Fresh Del Monte Produce as a potential investment, you should definitely consider some of the risks involved with Fresh Del Monte Produce. For example, we've found 2 warning signs for Fresh Del Monte Produce that we recommend you consider before investing in the business.
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.
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