The board of The Hershey Company (NYSE:HSY) has announced that it will pay a dividend of $1.37 per share on the 14th of June. This makes the dividend yield about the same as the industry average at 2.8%.

View our latest analysis for Hershey

Hershey's Earnings Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. The last dividend was quite comfortably covered by Hershey's earnings, but it was a bit tighter on the cash flow front. The business is earning enough to make the dividend feasible, but the cash payout ratio of 83% indicates it is more focused on returning cash to shareholders than growing the business.

The next year is set to see EPS grow by 6.3%. If the dividend continues on this path, the payout ratio could be 51% by next year, which we think can be pretty sustainable going forward.

Hershey Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the annual payment back then was $1.94, compared to the most recent full-year payment of $5.48. This means that it has been growing its distributions at 11% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Hershey has grown earnings per share at 14% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payments look okay by most measures, the lack of cash flow could definitely cause problems for them in the future. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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. For example, we've picked out 1 warning sign for Hershey that investors should know about before committing capital to this stock. Is Hershey not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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