The board of Reynolds Consumer Products Inc. (NASDAQ:REYN) has announced that it will pay a dividend on the 30th of May, with investors receiving $0.23 per share. The dividend yield will be 4.1% based on this payment which is still above the industry average.
We've discovered 1 warning sign about Reynolds Consumer Products. View them for free.Reynolds Consumer Products' Payment Could Potentially Have Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, Reynolds Consumer Products was quite comfortably earning enough to cover the dividend. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
The next year is set to see EPS grow by 13.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 56%, which is in the range that makes us comfortable with the sustainability of the dividend.
See our latest analysis for Reynolds Consumer Products
Reynolds Consumer Products Doesn't Have A Long Payment History
It is great to see that Reynolds Consumer Products 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. The annual payment during the last 5 years was $0.60 in 2020, and the most recent fiscal year payment was $0.92. This implies that the company grew its distributions at a yearly rate of about 8.9% over that duration. Reynolds Consumer Products has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.
The Dividend's Growth Prospects Are Limited
The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 2.1% per year. Growth of 2.1% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
In Summary
In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Reynolds Consumer Products that investors need to be conscious of moving forward. Is Reynolds Consumer Products not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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