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The board of Flowers Foods, Inc. (NYSE:FLO) has announced that it will pay a dividend of US$0.21 per share on the 17th of December. This payment means that the dividend yield will be 3.1%, which is around the industry average.
Check out our latest analysis for Flowers Foods
Flowers Foods' Dividend Is Well Covered By Earnings
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Flowers Foods' dividend made up quite a large proportion of earnings but only 64% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
The next year is set to see EPS grow by 14.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 74%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Flowers Foods Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from US$0.36 in 2011 to the most recent annual payment of US$0.84. This works out to be a compound annual growth rate (CAGR) of approximately 9.0% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
Dividend Growth May Be Hard To Achieve
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 3.8% per annum over the last five years, which admittedly is a bit slow. Slow growth and a high payout ratio could mean that Flowers Foods has maxed out the amount that it has been able to pay to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.
Our Thoughts On Flowers Foods' Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Flowers Foods' payments, as there could be some issues with sustaining them into the future. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Flowers Foods that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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.
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