Safeway (SWY) hikes its quarterly dividend

SafewaySafeway increased its dividend payout by 14% today and the yield got above 3% threshold. (My threshold to consider the stock as a buy). This makes this stock more attractive to me to be added to my portfolio. The current yield of the stock is 3.1% at the rate of $0.20 per share.

But is this increase sustainable?

The Morningstar analysts are no longer providing a fair value for this stock and they have some concerns over the capital expenditures and the sustainability of the positive in-store growth mainly amid the strong competition from discount giants such as Wal-Mart or Costco.

What do you think, is SWY dividend increase justifiable in the long run?

When a company’s management increases its dividend a dividend growth investor can consider this as a good sign that the management (most likely) believes in the company’s growth. Unless they want to ruin the company or offer a phony one time payout to one of their leaving manager (a golden parachute), it would be a stupid move to increase dividends and bring financial stress upon a company.

But you never know what’s cooking under the hood.

I wanted to check how is the company doing financially and compared its free cash flow and EPS vs. dividends:

SWY

SWY

I couldn’t find bad things with this company. Although there is some risk involved with rising prices of food when customers may turn to Safeway’s low-cost competitors, but the recent move from the management seems optimistic. And there is no stock out there with no risk anyway.

Safeway has a nice 7 years history of increasing the dividend, it’s payout ratio is 26%, and dividend growth rate at 20.5%.

I still consider this stock a buy and I will continue selling puts against this company as long as I get exercised into a position.

Happy trading!

 





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