Once you decide to invest in a dividend-paying company, you can easily find out its quarterly dividend rate. However, you’ll need to do a little bit of extra work to figure out your initial outlay if you’re targeting a specific amount in annual dividends.
If you’re looking to buy stock in Constellation Brands (STZ 0.83%), which is a beer, wine, and spirits producer, how much of an investment would you need to earn $500 in yearly dividends?
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Dividend sustainability
If you’re interested in receiving dividends, you’ll want to ensure that the companies can sustain — or even better — raise payments. Constellation Brands has paid quarterly dividends for a decade, initiating a payout in April 2015. Despite this history, investors still need to ask if the payment is safe.
While it’s impossible to know the future, here’s a look at Constellation Brands’ free cash flow (FCF), in comparison to its dividend payments, to help make the determination. During the first nine months of the fiscal year, which ended on Nov. 30, the company’s FCF was $1.3 billion, versus $551.3 million in dividends.
Hence, Constellation Brands not only has a willingness to pay dividends; it also has the means.
Doing the math
Constellation Brands has increased dividends in the past, including last year’s 13.5% hike to a quarterly amount of $1.01 per share. But if they stay where they are, the payout equates to $4.04 annually. To receive $500 in dividends, then, you’d have to own 124 shares. With the stock price at $183.85 at the close of business on March 12, you’d have to invest about $22,800.
Constellation Brands’ stock has a 2.2% dividend yield, higher than the S&P 500‘s (^GSPC 1.72%) 1.3%.
