Yahoo Finance Keurig Dr Pepper Inc. (NASDAQ:KDP) Will Pay A US$0.215 Dividend In Four Days
Keurig Dr Pepper Inc. (NASDAQ:KDP) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. Meaning, you will need to purchase Keurig Dr Pepper's shares before the 28th of June to receive the dividend, which will be paid on the 12th of July.
The company's next dividend payment will be US$0.215 per share, and in the last 12 months, the company paid a total of US$0.86 per share. Based on the last year's worth of payments, Keurig Dr Pepper stock has a trailing yield of around 2.5% on the current share price of US$34.38. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Keurig Dr Pepper
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. Keurig Dr Pepper paid out more than half (54%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Keurig Dr Pepper paid out more free cash flow than it generated - 148%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
While Keurig Dr Pepper's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Keurig Dr Pepper's ability to maintain its dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Keurig Dr Pepper has grown its earnings rapidly, up 24% a year for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past six years, Keurig Dr Pepper has increased its dividend at approximately 6.2% 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.
To Sum It Up
Should investors buy Keurig Dr Pepper for the upcoming dividend? The best dividend stocks typically boast a long history of growing earnings per share (EPS) via a combination of earnings growth and buybacks. So, you might think that Keurig Dr Pepper buying back stock, growing its EPS, and retaining profits within its business is a good combination. However, we note with some concern that it paid out 148% of its free cash flow last year, which is uncomfortably high and makes us wonder why the company chose to spend even more cash on buybacks. To summarise, Keurig Dr Pepper looks okay on this analysis, although it doesn't appear a stand-out opportunity.
So if you want to do more digging on Keurig Dr Pepper, you'll find it worthwhile knowing the risks that this stock faces. Be aware that Keurig Dr Pepper is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...
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.
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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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