Here's Why We're Wary Of Buying Tyson Foods' (NYSE:TSN) For Its Upcoming Dividend

Yahoo

25-05-2025

Readers hoping to buy Tyson Foods, Inc. (NYSE:TSN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Accordingly, Tyson Foods investors that purchase the stock on or after the 30th of May will not receive the dividend, which will be paid on the 13th of June.
The company's upcoming dividend is US$0.50 a share, following on from the last 12 months, when the company distributed a total of US$2.00 per share to shareholders. Based on the last year's worth of payments, Tyson Foods has a trailing yield of 3.6% on the current stock price of US$55.55. 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.
We've discovered 2 warning signs about Tyson Foods. View them for free.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 77% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 54% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Tyson Foods's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
See our latest analysis for Tyson Foods
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Tyson Foods's earnings per share have fallen at approximately 14% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Tyson Foods has lifted its dividend by approximately 21% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Tyson Foods is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
From a dividend perspective, should investors buy or avoid Tyson Foods? While earnings per share are shrinking, it's encouraging to see that at least Tyson Foods's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: Tyson Foods has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Tyson Foods. For example - Tyson Foods has 2 warning signs we think you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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