Kraft Heinz (NASDAQ:KHC) Will Pay A Dividend Of US$0.40
The board of The Kraft Heinz Company (NASDAQ:KHC) has announced that it will pay a dividend on the 24th of June, with investors receiving US$0.40 per share. Based on this payment, the dividend yield on the company's stock will be 3.8%, which is an attractive boost to shareholder returns.
View our latest analysis for Kraft Heinz
Kraft Heinz's Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Kraft Heinz's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
Looking forward, earnings per share is forecast to rise by 168.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Kraft Heinz's Dividend Has Lacked Consistency
Looking back, Kraft Heinz's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2016, the first annual payment was US$2.30, compared to the most recent full-year payment of US$1.60. The dividend has shrunk at around 5.9% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Has Limited Growth Potential
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though Kraft Heinz's EPS has declined at around 19% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
The Dividend Could Prove To Be Unreliable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Kraft Heinz is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 2 warning signs for Kraft Heinz that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
