Keurig Dr Pepper's (NASDAQ:KDP) Dividend Will Be $0.23
The board of Keurig Dr Pepper Inc. (NASDAQ:KDP) has announced that it will pay a dividend of $0.23 per share on the 16th of January. Based on this payment, the dividend yield will be 3.1%, which is fairly typical for the industry.
Keurig Dr Pepper's Payment Could Potentially Have Solid Earnings Coverage
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Keurig Dr Pepper's was paying out quite a large proportion of earnings and 78% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.
The next year is set to see EPS grow by 72.1%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 45% which would be quite comfortable going to take the dividend forward.
See our latest analysis for Keurig Dr Pepper
Keurig Dr Pepper Doesn't Have A Long Payment History
It is great to see that Keurig Dr Pepper has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2018, the dividend has gone from $0.60 total annually to $0.92. This means that it has been growing its distributions at 6.3% per annum over that time. Keurig Dr Pepper has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.
Dividend Growth May Be Hard To Achieve
The company's investors will be pleased to have been receiving dividend income for some time. However, Keurig Dr Pepper has only grown its earnings per share at 4.7% per annum over the past five years. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. 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 Keurig Dr Pepper's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments are bit high to be considered sustainable, and the track record isn't the best. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Keurig Dr Pepper (of which 1 is a bit concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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