Readers hoping to buy Tyson Foods, Inc. (NYSE:TSN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 27th of November in order to be eligible for this dividend, which will be paid on the 13th of December.
Tyson Foods's next dividend payment will be US$0.42 per share. Last year, in total, the company distributed US$1.68 to shareholders. Last year's total dividend payments show that Tyson Foods has a trailing yield of 1.9% on the current share price of $88.53. If you buy this business for its dividend, you should have an idea of whether Tyson Foods's dividend is reliable and sustainable. So we need to investigate whether Tyson Foods can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Tyson Foods's payout ratio is modest, at just 27% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 43% of its free cash flow in the past year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Tyson Foods's earnings per share have been growing at 18% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past ten years, Tyson Foods has increased its dividend at approximately 27% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Has Tyson Foods got what it takes to maintain its dividend payments? We love that Tyson Foods is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Tyson Foods looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of Tyson Foods? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.