It looks like Kellogg Company (NYSE:K) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 30th of November in order to be eligible for this dividend, which will be paid on the 15th of December.
Kellogg's next dividend payment will be US$0.57 per share, on the back of last year when the company paid a total of US$2.28 to shareholders. Calculating the last year's worth of payments shows that Kellogg has a trailing yield of 3.6% on the current share price of $62.47. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Kellogg has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Kellogg is paying out an acceptable 66% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Kellogg generated enough free cash flow to afford its dividend. It paid out more than half (57%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Kellogg's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Kellogg's earnings per share have risen 15% per annum over the last five years. Kellogg is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Kellogg has increased its dividend at approximately 4.3% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
Is Kellogg an attractive dividend stock, or better left on the shelf? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Kellogg is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. To summarise, Kellogg looks okay on this analysis, although it doesn't appear a stand-out opportunity.
In light of that, while Kellogg has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 2 warning signs for Kellogg you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top 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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