Lamb Weston hikes dividend by 2.8%

Lamb Weston (LW), a leading supplier of frozen potato products, has announced a modest increase in its quarterly dividend. The Board of Directors declared a $0.37 per share dividend, representing a $0.01 or 2.8% increase from the previous payout. 

The dividend is scheduled for payment on February 28, 2025, to stockholders of record as of January 31, 2025.

Dividend Overview

At the current share price of $60, this increase reflects a dividend yield of approximately 1.8%. The company has a consistent track record of dividend growth, having raised its payout for 8 consecutive years. This latest increase, however, is significantly smaller than the 28.6% hike announced in 2023, reflecting the company's cautious approach amidst broader challenges.

Financial Context

For the fiscal year 2025, ending in May, Lamb Weston’s annual dividend payments are estimated to total $213 million. This represents a payout ratio of approximately 62% based on the estimated free cash flow of $343 million. While this indicates the dividend is well-covered, it comes against the backdrop of a year-to-date stock price decline of 45% and ongoing operational challenges.

Operational Challenges and Leadership Changes

Lamb Weston has faced a decline in volumes over recent years, a trend that has continued into 2024. In addition, the company recently announced a leadership transition with the appointment of a new CEO, accompanied by a downward revision to its financial outlook. These developments signal a period of strategic reassessment as the company navigates a challenging market environment.

Conclusion

Lamb Weston’s dividend increase underscores its commitment to returning value to shareholders, even as it contends with operational pressures and leadership changes. The company’s ability to sustain and grow its dividend, supported by free cash flow, remains a key focal point for investors amidst a rapidly evolving landscape.