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Cal-Maine Foods, Inc.'s (NASDAQ:CALM) dividend will be increasing from last year's payment of the same period to $3.46 on 15th of May. Despite this raise, the dividend yield of 2.0% is only a modest boost to shareholder returns.
Estimates Indicate Cal-Maine Foods' Could Struggle to Maintain Dividend Payments In The Future
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Cal-Maine Foods' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
EPS is set to fall by 67.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 116%, which could put the dividend in jeopardy if the company's earnings don't improve.
View our latest analysis for Cal-Maine Foods
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was $0.727, compared to the most recent full-year payment of $1.89. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
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. It's encouraging to see that Cal-Maine Foods has been growing its earnings per share at 52% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
Cal-Maine Foods Looks Like A Great Dividend Stock
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.