Lancaster Colony (NASDAQ:LANC) Is Increasing Its Dividend To $0.85
Lancaster Colony Corporation's (NASDAQ:LANC) periodic dividend will be increasing on the 30th of December to $0.85, with investors receiving 6.3% more than last year's $0.80. Even though the dividend went up, the yield is still quite low at only 1.6%.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Lancaster Colony's stock price has increased by 40% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Check out our latest analysis for Lancaster Colony
Lancaster Colony's Payment Has Solid Earnings Coverage
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Lancaster Colony's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 320% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
Over the next year, EPS is forecast to expand by 33.3%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 75% which is a bit high but can definitely be sustainable.
Lancaster Colony 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 $1.44 in 2012 to the most recent total annual payment of $3.20. This works out to be a compound annual growth rate (CAGR) of approximately 8.3% 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.
Dividend Growth May Be Hard To Achieve
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Lancaster Colony's EPS has declined at around 2.9% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.
Lancaster Colony's Dividend Doesn't Look Sustainable
Overall, we always like to see the dividend being raised, but we don't think Lancaster Colony will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Lancaster Colony is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Lancaster Colony has 4 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of 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.
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