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It Might Be Better To Avoid Flowers Foods, Inc.'s (NYSE:FLO) Upcoming Dividend

Simply Wall St
·4 min read

Flowers Foods, Inc. (NYSE:FLO) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 27th of February to receive the dividend, which will be paid on the 13th of March.

Flowers Foods's upcoming dividend is US$0.19 a share, following on from the last 12 months, when the company distributed a total of US$0.76 per share to shareholders. Looking at the last 12 months of distributions, Flowers Foods has a trailing yield of approximately 3.4% on its current stock price of $22.06. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Flowers Foods

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year Flowers Foods paid out 96% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. 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. It paid out more than half (61%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Flowers Foods's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:FLO Historical Dividend Yield, February 22nd 2020
NYSE:FLO Historical Dividend Yield, February 22nd 2020

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that Flowers Foods's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past ten years, Flowers Foods has increased its dividend at approximately 11% a year on average.

Final Takeaway

Is Flowers Foods worth buying for its dividend? Earnings per share have been flat in recent times, which is, we suppose, better than seeing them shrink. Additionally, Flowers Foods is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. It's not that we think Flowers Foods is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Ever wonder what the future holds for Flowers Foods? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.