U.S. markets closed
  • S&P Futures

    4,131.00
    +7.50 (+0.18%)
     
  • Dow Futures

    33,964.00
    +30.00 (+0.09%)
     
  • Nasdaq Futures

    12,544.25
    +28.75 (+0.23%)
     
  • Russell 2000 Futures

    1,969.30
    +4.20 (+0.21%)
     
  • Crude Oil

    74.87
    +0.76 (+1.03%)
     
  • Gold

    1,885.40
    +5.90 (+0.31%)
     
  • Silver

    22.32
    +0.08 (+0.35%)
     
  • EUR/USD

    1.0738
    +0.0007 (+0.06%)
     
  • 10-Yr Bond

    3.6340
    +0.1020 (+2.89%)
     
  • Vix

    19.43
    +1.10 (+6.00%)
     
  • GBP/USD

    1.2043
    +0.0019 (+0.16%)
     
  • USD/JPY

    132.3000
    -0.3070 (-0.23%)
     
  • BTC-USD

    22,885.38
    -32.08 (-0.14%)
     
  • CMC Crypto 200

    525.67
    +0.54 (+0.10%)
     
  • FTSE 100

    7,836.71
    -65.09 (-0.82%)
     
  • Nikkei 225

    27,724.36
    +30.71 (+0.11%)
     

We Wouldn't Be Too Quick To Buy Flowers Foods, Inc. (NYSE:FLO) Before It Goes Ex-Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Flowers Foods, Inc. (NYSE:FLO) is about to go ex-dividend in just 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Flowers Foods investors that purchase the stock on or after the 1st of December will not receive the dividend, which will be paid on the 16th of December.

The company's next dividend payment will be US$0.22 per share. Last year, in total, the company distributed US$0.88 to shareholders. Based on the last year's worth of payments, Flowers Foods has a trailing yield of 3.0% on the current stock price of $29.76. If you buy this business for its dividend, you should have an idea of whether Flowers Foods's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Flowers Foods

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. 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. Over the past year it paid out 129% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Flowers Foods paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Flowers Foods to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

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

historic-dividend
historic-dividend

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 fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Flowers Foods earnings per share are up 5.7% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Flowers Foods has lifted its dividend by approximately 8.2% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Flowers Foods an attractive dividend stock, or better left on the shelf? Flowers Foods is paying out a reasonable percentage of its income and an uncomfortably high 129% of its cash flow as dividends. At least earnings per share have been growing steadily. It's not that we think Flowers Foods is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Flowers Foods and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 2 warning signs for Flowers Foods and you should be aware of them before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here