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The board of Kenvue Inc. (NYSE:KVUE) has announced that it will pay a dividend of $0.205 per share on the 28th of May. Based on this payment, the dividend yield on the company's stock will be 3.5%, which is an attractive boost to shareholder returns.
Kenvue's Payment Could Potentially Have Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 151% of what it was earning. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.
Over the next year, EPS is forecast to expand by 121.7%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 71% which would be quite comfortable going to take the dividend forward.
View our latest analysis for Kenvue
Kenvue Is Still Building Its Track Record
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2023, the dividend has gone from $0.80 total annually to $0.82. This implies that the company grew its distributions at a yearly rate of about 1.2% over that duration. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Kenvue's earnings per share has shrunk at 24% a year over the past three years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
We're Not Big Fans Of Kenvue's Dividend
Overall, while some might be pleased that the dividend wasn't cut, we think this may help Kenvue make more consistent payments in the future. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. The dividend doesn't inspire confidence that it will provide solid income in the future.