Last update on 2024-06-28

Kraft Heinz (KHC) - Dividend Analysis (Final Score: 4/8)

Explore Kraft Heinz (KHC)'s dividend stability with our 8-criteria analysis. Final Score: 4/8 indicates significant insights on long-run performance.

Short Analysis - Dividend Score: 4

We're running Kraft Heinz (KHC) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Kraft Heinz (KHC) was evaluated based on an 8-criteria scoring system for its dividend policy, resulting in a total score of 4. While KHC has an attractive dividend yield significantly above the industry average, stability and reliability are concerns. The company has not consistently paid or grown dividends over the last 20 years. Erratic coverage by both earnings and cash flow, coupled with a high payout ratio at times, suggests financial instability. The dividends also show notable declines and have not been paid consistently for over 25 years. Additionally, stock repurchases have not been reliable over the past two decades.

Insights for Value Investors Seeking Stable Income

Due to the inconsistent dividend payments and financial instability indicated in the analysis, Kraft Heinz might not be the best choice for long-term dividend-seeking investors. Those looking for stable and reliable dividends may want to explore other options with a more consistent performance record. However, the higher dividend yield may still be attractive to income-focused investors willing to accept higher risks.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is the ratio of a company's annual dividend compared to its share price. It is an important metric for investors as it indicates the return on investment through dividends.

Kraft Heinz's current dividend yield of 4.3267% is significantly higher than the industry average of 1.77%. This is an attractive feature for income-focused investors as it implies a higher return on investment through dividends. Over the last 20 years, the dividend yield reached its peak at 5.8086% in 2018 but slightly declined to its current value of 4.3267%. However, it still remains consistently above the industry average. This could be a sign of a strong dividend policy. The closing stock price has seen a sharp decline from $87.32 in 2016 to $36.98 in 2023, yet the company maintained a relatively stable dividend per share of $1.6 from 2019 onwards, preserving investor confidence. This trend is positive for the dividend yield criterion as it suggests Kraft Heinz is committed to providing attractive dividends despite stock price fluctuations.

Average annual Growth Rate higher than 5% in the last 20 years?

Dividend Growth Rate represents the annualized percentage rate of growth of a company's dividend payments over time. It is essential as it indicates the company's ability to increase cash payouts to shareholders, which can enhance shareholder value and reflect business growth.

The data indicates that Kraft Heinz (KHC) has not consistently issued dividends over the last 20 years. For a significant period, from 2003 to 2015, there were no dividends distributed. A massive increase can be seen in 2016, but this dramatically dropped in 2017. Since then, dividends have been non-existent again. Therefore, the average dividend growth rate cannot be deemed consistently above 5% due to the sporadic and unstable nature of dividend payouts. This erratic dividend history is a negative trend for long-term dividend growth investors. The average dividend ratio of 0.40625714285714276 further suggests inconsistency.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio is the proportion of earnings a company pays to shareholders in the form of dividends. It is important to consider because it shows the balance a company maintains between retaining profits for growth and paying returns to its investors. Ideally, a payout ratio lower than 65% is considered sustainable, leaving enough room for growth and unexpected expenses.

Analyzing Kraft Heinz's payout ratio from 2015 onwards reveals a volatile trend. Although the average payout ratio over the last 20 years stands at a sustainable 61.12%, several years feature shockingly high ratios, peaking at 549.64% in 2020. Such high payout ratios indicate that Kraft Heinz had to utilize more than its earnings to pay dividends, possibly dipping into reserves or borrowing, which could be troublesome in the long term. Therefore, despite an acceptable average, the recurrent spikes suggest underlying financial instability and poor earnings quality during certain periods. This trend is worrying for sustainable dividend payouts.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings. This criterion evaluates whether a company’s earnings are sufficient to cover its dividend payments. It is critical as it reflects the sustainability of dividend payments. High dividend payout without adequate earnings coverage might signal potential financial distress or future dividend cuts.

Analyzing Kraft Heinz's trend from 2015 to 2023 shows fluctuating coverage of dividends by earnings per share (EPS). Notably, 2018 shows a negative coverage (-0.2990), due essentially to a significant EPS loss (-$8.361). In contrast, 2020 presents high coverage (5.4964), indicating a strong EPS relative to dividend. Across this period, the sustainability varied, favoring years with positive and high ratios. Importantly, durable high ratios indicate robust financial health and consistent dividend maintenance. Nevertheless, the inconsistency suggests a need for strategic financial adjustments.

Dividends Well Covered by Cash Flow?

Explain the criterion for Kraft Heinz (KHC) and why it is important to consider

The coverage of dividends by cash flow measures how easily a company can pay dividends from its generated cash flow. A higher ratio indicates stronger coverage, suggesting that the company can sustain its dividend payments even in tougher times. Conversely, a lower or negative ratio signals potential issues in maintaining dividend payments, which might concern investors.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Over the past 20 years, the dividend per share for Kraft Heinz (KHC) has shown varied historical data. Between 2003 and 2012, the company did not pay out any dividends. Dividend payments began in 2013 with $1.7 per share. By 2016, this increased to $2.45 but then decreased to $1.6 in 2019 and has remained steady through 2023. The decrease from $2.5 in 2018 to $1.6 in 2019 represents a significant 36% drop, clearly exceeding the 20% threshold of concern for stability. Consequently, this trend indicates instability in the company's dividend payouts, which could be a red flag for income-seeking investors.

Dividends Paid for Over 25 Years?

Dividends paid consistently for over 25 years is a criterion used to assess the long-term reliability and stability of a company's dividend payments. It is important because it demonstrates the company's commitment to returning value to its shareholders and indicates financial health and operational sustainability over an extended period.

From the data provided, Kraft Heinz (KHC) has not been paying dividends consistently for over 25 years. They started paying dividends in 2016, with an initial dividend per share of $1.7. Since then, the dividend peaked in 2018 at $2.5 per share before decreasing and stabilizing at $1.6 per share from 2019 onwards. Given that the company has only a 7-year history of dividend payments, this does not meet the criterion of having paid dividends for over 25 years. This limitation may be detrimental for investors seeking long-term dividend stability and could reflect the company's relatively recent commitment to returning capital to shareholders.

Reliable Stock Repurchases Over the Past 20 Years?

Reliability of stock repurchases over the past two decades is crucial for evaluating how effectively a company returns capital to shareholders. Consistent repurchases can indicate financial stability and strong cash flow.

The data reveals that Kraft Heinz (KHC) has engaged in stock repurchases in only a few isolated years, specifically 2014 and 2018. The remaining years do not show any substantial decrease in the number of shares outstanding. This pattern indicates that the company has not been consistent in executing share repurchase programs. Given an average of 4.4343, which implies very minimal and infrequent buybacks, Kraft Heinz does not exhibit reliable stock repurchasing behavior. This lack of consistency might make it less attractive to investors looking for companies that regularly return capital through buybacks.