Why Heineken’s Dividend Boost is Worth Celebrating 🍺

A potential future to celebrate? Analysts expect Heineken will grow its earnings by around 13.5% annualised over the next five years, with a payout between 30%-40% of its net profit.

Investors who buy shares of alcoholic beverages maker Heineken (AMS: HEIO) (AMS: HEIA) before April 24, 2023, and hold until at least that date will receive a dividend of €1.23 per share on May 2, 2023. That is the largest single payment to shareholders that Heineken has offered going back at least to the year 2000. 

Heineken
 

The company’s dividend policy is to pay two dividends per year, an interim dividend plus a final dividend. The dividend payment coming up is the company’s final dividend for 2022, and the company’s standard practice is to set the interim dividend for the next year at 40% of the total dividend of the previous year. 

Since Heineken’s total dividend for 2022 was €1.73 per share, that practice means that it is very likely that its interim dividend for 2023 will be €0.69 per share. That payment will also represent a generous boost over the €0.50 interim dividend that the business handed shareholders in 2022.

On top of that, the company’s objective is to payout between 30% and 40% of its net profit before exceptional items and brand amortization to its shareholders. Its total 2022 dividend sits at 35.1% of that number, directly in the middle of that range. That gives Heineken money to continue to reinvest in its growth, while also offering it the flexibility to continue boosting its dividend a bit if it chooses to do so.

But what about the economy?

Of course, any company’s ability to pay its dividend to its shareholders depends heavily on its ability to sell its products to its end consumers. On that front, Heineken is well positioned to make it through a recession thanks to the industry it operates in. Research on consumer behavior during the recession that followed the global financial crisis indicates that total alcohol consumption actually increased during that time period.

Sure, when people have less money, they are less likely to go to bars, restaurants, and sporting events where alcoholic beverages are sold with incredibly high markups. From Heineken’s perspective, though, a consumer buying one of its beers from the grocery store is still just as much a consumer as one buying one at those higher-priced venues. 

Indeed, when the COVID-19 pandemic shut down bars and restaurants, grocery store sales of beer absolutely surged. That shows just how transferrable the location of alcohol sales can be, and just how and resilient consumers are when it comes to buying that product.

And then there’s the risk of continued inflation. On that front, so far, at least in the American market, volumes have fallen a bit as prices have risen, but total dollar sales appear to still be holding strong.  If that trend continues, it can actually be helpful for the company’s bottom line, as they’ll be able to cut back on volume-related costs like shipping while still keeping their revenues whole.

Of course, there are risks beyond just the economic cycle, and if those risks materialise, the future may not be quite as bright. For instance, as Europe’s biggest brewer, Heineken could face some serious challenges if the Russia and Ukraine war escalates to an overall regional conflict.

A potential future to celebrate

Despite the risks, the base case for the future adds up to a business that has a great chance of maintaining its recently raised dividend. Beyond that, it may even have the potential to continue to increase that payment further over time.

Indeed, analysts expect Heineken will be able to grow its earnings by around 13.5% annualised over the next five years. Given its policy of paying out between 30% and 40% of its earnings as a dividend, if that growth materialises, it should bode well for investors’ chances of seeing further dividend increases to come.

At the time of publication, Chuck Saletta did not own shares of Heineken. 

Heineken
 

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