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Constellation Brands, Inc. (NYSE:STZ) has announced that it will be increasing its dividend from last year's comparable payment on the 15th of May to $1.02. Although the dividend is now higher, the yield is only 2.2%, which is below the industry average.
Constellation Brands' Projections Indicate Future Payments May Be Unsustainable
Estimates Indicate Constellation Brands' Could Struggle to Maintain Dividend Payments In The Future
Constellation Brands' Future Dividends May Potentially Be At Risk
Even a low dividend yield can be attractive if it is sustained for years on end. Even though Constellation Brands isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.
The next 12 months is set to see EPS grow by 113.0%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.
View our latest analysis for Constellation Brands
Constellation Brands Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from $1.24 total annually to $4.08. This means that it has been growing its distributions at 13% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Constellation Brands Could Grow Its Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Constellation Brands has grown earnings per share at 5.3% per year over the past five years. It's not an ideal situation that the company isn't turning a profit but the growth recently is a positive sign. As long as the company becomes profitable soon, it is on a trajectory that could see it being a solid dividend payer.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Constellation Brands will make a great income stock. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.