editorial-team@simplywallst.com (Simply Wall St)
·4 min read
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 The Kraft Heinz Company (NASDAQ:KHC) is about to go ex-dividend in just four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Therefore, if you purchase Kraft Heinz's shares on or after the 7th of March, you won't be eligible to receive the dividend, when it is paid on the 29th of March.
The company's next dividend payment will be US$0.40 per share, and in the last 12 months, the company paid a total of US$1.60 per share. Based on the last year's worth of payments, Kraft Heinz stock has a trailing yield of around 4.6% on the current share price of US$35.13. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Kraft Heinz has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Kraft Heinz
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Kraft Heinz paid out more than half (69%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Kraft Heinz generated enough free cash flow to afford its dividend. Over the last year it paid out 66% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Kraft Heinz has grown its earnings rapidly, up 72% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Kraft Heinz could have strong prospects for future increases to the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Kraft Heinz has seen its dividend decline 4.4% per annum on average over the past eight years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
Final Takeaway
From a dividend perspective, should investors buy or avoid Kraft Heinz? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Kraft Heinz's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 69% and 66% respectively. All things considered, we are not particularly enthused about Kraft Heinz from a dividend perspective.
While it's tempting to invest in Kraft Heinz for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 1 warning sign for Kraft Heinz you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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.
