How much dividend will Hershey pay this year?

Confectionery King Hershey (NYSE:HSY) offers sweet treats for junk food lovers and quarterly distributions for income collectors. But chasing Hershey stock profits can be bad for your financial health.

On the one hand, Hershey is a well-known and long-standing consumer staples company that has been profitable for many years. On the other hand, while Hershey will almost certainly pay a decent dividend this year, there is no guarantee that the sugar high of Hershey’s rising profitability will last.

The Big “If”

If you’re an income investor, it’s easy to become complacent when a company has consistently raised its dividend for many years, as Hershey has done. But remember, past performance is never a guarantee of future profits.

Hershey currently pays a quarterly dividend of $1.37 per share, which would add up to $5.48 per share over the next year. But that’s only “if” Hershey continues to pay at least $1.37 per share, which is certainly not guaranteed.

Hershey recently experienced its first quarterly earnings per share (EPS) miss in some time, when it reported $1.27 per share in actual earnings in Q2 versus $1.44 in expected earnings. Additionally, the company’s earnings fell 36.8% year over year, with CEO Michele Buck stating that “consumers are pulling back on discretionary spending.”

Taking care of your payout ratio

Hershey stock has been volatile and down over the past year. At least shareholders can enjoy decent distributions, though, as it offers a 2.68% projected annual dividend yield, compared with an average yield of around 2.13% for the consumer discretionary sector.

However, Hershey’s dividend payout ratio (the portion of earnings paid out as dividends) for the last year was $5.30, or about 59% of the $8.96 earnings per share. That can be a red flag when a company’s payout ratio is above 50%. Of course, Hershey’s payout ratio of 59% is just a tad high, but it’s one worth monitoring.

More immediately significant is likely the decline in Hershey’s profits. So don’t rush to chase Hershey’s profitability — or any other stock.

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David Moadel has no position in any stocks mentioned. The Motley Fool has a position in and recommends Hershey. The Motley Fool has a disclosure policy.

How much will Hershey pay in dividends this year? was originally published by The Motley Fool