Readers hoping to buy The Kraft Heinz Company (NASDAQ:KHC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 27th of August, you won’t be eligible to receive this dividend, when it is paid on the 25th of September.
Kraft Heinz’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 $34.56. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Kraft Heinz can afford its dividend, and if the dividend could grow.
View 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’s dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. With the recent loss, it’s important to check if the business generated enough cash to pay its dividend. If Kraft Heinz didn’t generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Dividends consumed 51% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Kraft Heinz was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Kraft Heinz’s dividend payments per share have declined at 7.0% per year on average over the past five years, which is uninspiring. While it’s not great that earnings and dividends per share have fallen in recent years, we’re encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
Remember, you can always get a snapshot of Kraft Heinz’s financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Is Kraft Heinz worth buying for its dividend? It’s hard to get used to Kraft Heinz paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Kraft Heinz has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Having said that, if you’re looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Kraft Heinz. To help with this, we’ve discovered 2 warning signs for Kraft Heinz (1 is a bit concerning!) that you ought to be aware of before buying the shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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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