The board of Flowers Foods, Inc. (NYSE:FLO) has announced that it will pay a dividend of $0.24 per share on the 13th of December. This makes the dividend yield 4.5%, which will augment investor returns quite nicely.

Check out our latest analysis for Flowers Foods

Flowers Foods' Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend made up a very large portion of earnings and also represented 89% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Over the next year, EPS is forecast to expand by 21.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 73%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Flowers Foods Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $0.45 in 2014, and the most recent fiscal year payment was $0.96. This implies that the company grew its distributions at a yearly rate of about 7.9% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Flowers Foods Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Flowers Foods has impressed us by growing EPS at 5.7% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Flowers Foods' payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Flowers Foods that investors should take into consideration. 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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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.