Lamb Weston Holdings' (NYSE:LW) Upcoming Dividend Will Be Larger Than Last Year's

The board of Lamb Weston Holdings, Inc. (NYSE:LW) has announced that the dividend on 27th of February will be increased to $0.38, which will be 2.7% higher than last year's payment of $0.37 which covered the same period. The payment will take the dividend yield to 3.4%, which is in line with the average for the industry.

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Lamb Weston Holdings' Payment Could Potentially Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. The last dividend was quite easily covered by Lamb Weston Holdings' earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share is forecast to rise by 48.6% over the next year. If the dividend continues on this path, the payout ratio could be 39% by next year, which we think can be pretty sustainable going forward.

See our latest analysis for Lamb Weston Holdings

Lamb Weston Holdings Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. Since 2016, the dividend has gone from $0.75 total annually to $1.48. This means that it has been growing its distributions at 7.8% per annum over that time. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

We Could See Lamb Weston Holdings' Dividend Growing

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Lamb Weston Holdings has been growing its earnings per share at 6.9% a year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Our Thoughts On Lamb Weston Holdings' Dividend

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Lamb Weston Holdings that you should be aware of before investing. 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.