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Mondelez International, Inc.'s (NASDAQ:MDLZ) dividend will be increasing to US$0.35 on 14th of October. This takes the annual payment to 2.1% of the current stock price, which unfortunately is below what the industry is paying.
Mondelez International's Payment Has Solid Earnings Coverage
Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend was quite easily covered by Mondelez International's earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to fall by 4.1% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 50%, which we are pretty comfortable with and we think is feasible on an earnings basis.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from US$1.16 in 2011 to the most recent annual payment of US$1.40. This implies that the company grew its distributions at a yearly rate of about 1.9% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
Dividend Growth May Be Hard To Come By
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. In the last five years, Mondelez International's earnings per share has shrunk at approximately 8.7% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
Our Thoughts On Mondelez International's Dividend
Overall, we always like to see the dividend being raised, but we don't think Mondelez International will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Mondelez International that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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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