How much will Hershey pay out in dividends this year?

The king of confectionery Hershey (HSY 0.86%) offers sweets for junk food enthusiasts and quarterly distributions for income collectors. However, chasing yield with Hershey stock could end up being harmful to your financial health.

On the one hand, Hershey is a well-known and long-established consumer staples company that has been profitable for many years. On the other hand, while Hershey will almost certainly pay decent dividends this year, there’s no guarantee that the sugar high from Hershey’s yield increase 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. Keep in mind, however, that past performance is never a guarantee of future returns.

Hershey currently pays a quarterly dividend of $1.37 per share, which would equate 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 posted its first quarterly earnings per share (EPS) loss in a while, when it reported $1.27 per share in Q2 actual earnings, versus $1.44 in expected earnings. Additionally, the company’s earnings fell 36.8% year-over-year, with CEO Michele Buck citing “consumers pulling back on discretionary spending.”

Consider the payout ratio

Hershey’s stock has been bumpy and down over the past year. However, at least the company’s shareholders can enjoy decent distributions as it offers an annualized forward dividend yield of 2.68% versus the average yield of around 2.13% for the consumer defensive sector.

However, Hershey’s dividend payout ratio (the portion of its earnings paid out in dividend distributions) for the past year was $5.30, or about 59% of its earnings per share of $8.96. It can be a red flag when a company’s payout ratio exceeds 50%. Granted, Hershey’s 59% payout ratio is just a little high, but it’s a metric worth monitoring.

More immediately significant is perhaps the decline in Hershey’s earnings. So don’t rush to chase yield with Hershey — or any other stock.