Flowers Foods, Inc. (NYSE:FLO) Goes Ex-Dividend Soon

Readers hoping to buy Flowers Foods, Inc. (NYSE:FLO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. 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. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Flowers Foods’ shares before the 31st of August in order to receive the dividend, which the company will pay on the 15th of September.

The company’s next dividend payment will be US$0.23 per share. Last year, in total, the company distributed US$0.92 to shareholders. Calculating the last year’s worth of payments shows that Flowers Foods has a trailing yield of 3.9% on the current share price of $23.76. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.

Check out our latest analysis for Flowers Foods

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 84% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We’d be concerned if earnings began to decline. A useful secondary check can be to evaluate whether Flowers Foods generated enough free cash flow to afford its dividend. Flowers Foods paid out more free cash flow than it generated – 115%, to be precise – last year, which we think is concerningly high. We’re curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

Flowers Foods paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Cash is king, as they say, and were Flowers Foods to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.

Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NYSE:FLO Historic Dividend August 28th 2023

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it’s a relief to see Flowers Foods earnings per share are up 8.1% per annum over the last five years. Earnings have been growing at a steady rate, but we’re concerned dividend payments consumed most of the company’s cash flow over the past year.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Flowers Foods has lifted its dividend by approximately 8.0% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Flowers Foods worth buying for its dividend? Flowers Foods is paying out a reasonable percentage of its income and an uncomfortably high 115% of its cash flow as dividends. At least earnings per share have been growing steadily. It’s not an attractive combination from a dividend perspective, and we’re inclined to pass on this one for the time being.

So if you’re still interested in Flowers Foods despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we’ve discovered 3 warning signs for Flowers Foods that you should be aware of before investing in their shares.

Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are strong dividend payers.

What are the risks and opportunities for Flowers Foods?

Flowers Foods, Inc. produces and markets packaged bakery food products in the United States.

View Full Analysis

Rewards

  • Trading at 63% below our estimate of its fair value

  • Earnings are forecast to grow 12.46% per year

  • Earnings have grown 8.7% per year over the past 5 years

Risks

  • Significant insider selling over the past 3 months

View all Risks and Rewards

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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