The Kraft Heinz Company's (NASDAQ:KHC) investors are due to receive a payment of $0.40 per share on 26th of September. This makes the dividend yield 5.9%, which will augment investor returns quite nicely.

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Estimates Indicate Kraft Heinz's Dividend Coverage Likely To Improve

A big dividend yield for a few years doesn't mean much if it can't be sustained. Kraft Heinz is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 12%, which makes us pretty comfortable with the sustainability of the dividend.

View our latest analysis for Kraft Heinz

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was $2.30, compared to the most recent full-year payment of $1.60. This works out to be a decline of approximately 3.6% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Kraft Heinz Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Kraft Heinz has seen EPS rising for the last five years, at 5.4% per annum. It's not an ideal situation that the company isn't turning a profit but the growth recently is a positive sign. If the company can become profitable soon, continuing on this trajectory would bode well for the future of the dividend.

Our Thoughts On Kraft Heinz'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. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. 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. 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 2 warning signs for Kraft Heinz that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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