3/8/25
Flowers Foods (NYSE: FLO) is a well-known name in the bakery business, producing popular brands like Nature’s Own, Dave’s Killer Bread, and Wonder Bread. With over a century of experience, the company has built a strong presence in the U.S. baked goods market, supplying grocery stores, restaurants, and foodservice providers nationwide.
For investors focused on dividends, Flowers Foods offers a yield that’s hard to ignore, sitting well above the market average. While that makes it appealing for income-seeking investors, there are a few areas to watch, including its high payout ratio and modest growth trajectory. Let’s break it down.
Key Dividend Metrics
📈 Dividend Yield: 4.95% (significantly higher than the S&P 500 average)
💰 Annual Dividend: $0.96 per share
📅 Next Dividend Date: March 14, 2025
⚠️ Payout Ratio: 81.2% (on the higher side, which may limit future increases)
📊 Five-Year Average Yield: 3.57% (current yield is above its historical norm)
🔄 Dividend Growth Streak: 22 consecutive years
Dividend Overview
Flowers Foods has built a strong reputation for rewarding its shareholders with steady dividends. At a current yield of nearly 5 percent, the stock stands out in today’s market, especially for investors looking to generate income. Over the past five years, its average yield has been closer to 3.57 percent, meaning today’s payout is more attractive relative to its price.
However, there’s a catch. The company is using more than 80 percent of its earnings to pay dividends. That doesn’t leave much room for reinvestment or future growth. While companies in stable industries can sustain high payout ratios, it does raise questions about how much higher the dividend can go without stronger earnings.
Dividend Growth and Safety
One of the bright spots for Flowers Foods is its consistency. The company has increased its dividend for 22 straight years, which is a strong signal of reliability. That being said, the pace of dividend growth has been slow in recent years.
The company generates healthy cash flow, with $412.66 million in operating cash flow and $156.99 million in free cash flow. This suggests that, for now, there is enough money to keep the dividend going. However, the company also carries $1.25 billion in debt, with a debt-to-equity ratio of 87.61 percent. That level of leverage limits financial flexibility, making it crucial that earnings remain steady.
Flowers Foods’ dividend is safe for the moment, but unless the company can grow profits, the potential for larger increases is limited.
Chart Analysis
Price Action
Flowers Foods (FLO) has been in a clear downtrend over the past year, with the stock consistently making lower highs and lower lows. The 50-day moving average is sloping downward and remains well below the 200-day moving average, signaling continued bearish momentum. The price recently bounced off its lows around $18 but remains well below the previous support levels that turned into resistance.
Moving Averages
The 50-day moving average has been acting as dynamic resistance, pushing the stock lower each time it attempts to rally. The 200-day moving average is also sloping downward, which reinforces the longer-term trend of weakness. With both averages trending lower, it suggests that any short-term rally could face strong resistance before any meaningful reversal occurs.
Volume Trends
There have been a few notable spikes in volume, particularly during large downward moves, which suggests that selling pressure has been strong. However, recent volume bars show some accumulation, indicating that buyers are stepping in at lower levels. If this trend continues, it could suggest that the stock is finding some support around the current price.
Relative Strength Index (RSI)
The RSI had been sitting in oversold territory for a while but is now starting to recover. This indicates that the stock may have been excessively sold off and could be due for a short-term bounce. However, RSI alone doesn’t confirm a reversal—it just shows that the selling pressure has temporarily cooled. A move above the 50 level on the RSI would be a more constructive sign of improving momentum.
Recent Candlestick Behavior
The last few candles show some volatility, with both long wicks and price swings within the daily range. This suggests that buyers and sellers are battling for control at these levels. The most recent candle closed near the high of the day, which is a short-term positive sign. However, for a more convincing move, the stock would need to break above key resistance levels and hold those gains.
Analyst Ratings
📊 Upgrades
🔼 Deutsche Bank: Recently, Deutsche Bank shifted its stance on Flowers Foods, upgrading the stock from a sell to a hold rating. The firm adjusted its price target to $27, signaling that while they no longer see significant downside, they also don’t anticipate major upside in the near term. This upgrade was largely due to stabilization in input costs and steady consumer demand for packaged bakery products.
📊 Downgrades
🔽 Moody’s: About three weeks ago, Moody’s lowered Flowers Foods’ long-term issuer rating from Baa2 to Baa3. The downgrade followed the company’s announcement of a $795 million acquisition of Simple Mills, which is expected to push net leverage up to 3.1x–3.3x, a notable increase from its previous 2.0x. Analysts at Moody’s cited the additional debt burden and integration risks as reasons for the lower credit rating.
🔽 Fitch Ratings: Around the same time, Fitch Ratings also downgraded Flowers Foods, lowering its rating from BBB to BBB-. This move was driven by expectations that pro forma EBITDA leverage will rise to 3x once the Simple Mills deal is completed. Previously, the company’s leverage was in the high-1x range at the end of 2024. Fitch analysts noted that while the acquisition could provide long-term growth opportunities, the short-term impact on financial flexibility was a concern.
📉 Consensus Price Target
The average analyst price target for Flowers Foods is $21.00, reflecting a cautious but balanced outlook. Analysts acknowledge the company’s strong dividend history and brand strength but remain watchful of its higher debt load and near-term margin pressures.
These updates highlight the market’s mixed view on Flowers Foods, with some optimism about long-term potential but concerns about short-term financial headwinds.
Earning Report Summary
Flowers Foods just released its latest earnings report, giving investors a closer look at how the bakery giant performed in the most recent quarter. The numbers were a bit of a mixed bag, with some positive takeaways but also a few areas of concern.
Revenue and Sales Trends
The company brought in $1.191 billion in net sales, which was slightly lower than the same period last year, down about 0.7%. The reason? Pricing and product mix changes helped boost revenue, but overall sales volume took a hit. This suggests that while the company managed to push through price increases, it might be facing some pressure in maintaining demand.
Profitability and Earnings Growth
One of the standout positives was the jump in net income, which rose by $111.7 million, bringing total profits to $65.0 million for the quarter. A big part of this improvement came from lower legal settlement costs, which had weighed on earnings in previous periods. As a result, earnings per share (EPS) climbed to $0.31, with adjusted EPS coming in at $0.33, a solid $0.04 increase from last year.
Operational Efficiency
Another encouraging sign was the company’s adjusted EBITDA, which grew 10% year over year to reach $133.3 million. This means Flowers Foods was able to squeeze more profitability out of its operations, with EBITDA now making up 11.2% of total sales, improving by over a full percentage point. That’s a good indicator that cost-saving efforts and operational efficiencies are paying off.
What the CEO Had to Say
Ryals McMullian, the company’s CEO, was pretty upbeat about the results. He pointed out that the company’s key bread brands are performing well and that cost management efforts helped drive earnings higher. Flowers Foods even outperformed the overall bread category, showing growth in both unit sales and total dollars. However, McMullian also acknowledged some challenges, particularly in sweet baked goods and fast-food sales, where shifting consumer spending habits created some headwinds.
Looking Ahead
After this quarter’s results, the company is making some tweaks to its outlook for the rest of the year. The focus remains on branded retail bread, where the company is seeing strong demand, but there are still some concerns about how much promotional activity will be needed to keep sales steady. Flowers Foods also expects to see some benefits from its latest acquisitions and ongoing efficiency initiatives, which could help maintain profitability.
All in all, the quarter showed solid execution on the company’s strategy, but it’s clear that Flowers Foods will need to navigate some shifting consumer behaviors to keep the momentum going.
Financial Health and Stability
Flowers Foods operates in a business with thin profit margins, but it has maintained steady financial performance. The company pulls in $5.1 billion in revenue annually, with a net profit margin of 4.86 percent.
Key financial indicators show a solid, if unspectacular, balance sheet:
- Return on equity stands at 17.97 percent, a respectable number that shows how well the company generates profits from shareholder capital.
- Return on assets is 6.95 percent, which isn’t outstanding but aligns with the company’s industry peers.
- Operating margin of 7.28 percent indicates Flowers Foods is running a stable operation but with limited room to expand margins further.
Debt is something to keep an eye on. The company’s current ratio of 1.20 suggests it has enough assets to cover its short-term obligations, but the high debt-to-equity ratio means there isn’t a lot of room for aggressive investment or major strategic shifts.
Valuation and Stock Performance
At a current price of $19.40 per share, Flowers Foods is trading near the lower end of its 52-week range, well below its previous high of $26.12.
Looking at valuation, the stock is reasonably priced but not a screaming bargain:
- Price-to-sales ratio of 0.81 suggests the company is undervalued based on its revenue.
- Price-to-book ratio of 2.90 indicates the stock is trading at a fair value relative to its assets.
- Enterprise value to EBITDA sits at 10.36, which is a reasonable level for a mature company.
The stock has had a rough year, down more than 16 percent while the broader market has gained. With a 50-day moving average of $19.45 and a 200-day moving average of $21.76, it remains in a downtrend, though recent price stability suggests it may be finding a floor.
Risks and Considerations
🔺 High payout ratio means there isn’t much room for significant dividend increases without earnings growth.
📉 Stock price has underperformed, and without a catalyst, it may continue to struggle.
🥖 Competitive pressures in the food industry could impact margins and profitability.
📊 The company’s debt load reduces flexibility and could be a challenge in an economic downturn.
🛑 Growth prospects are limited, making this a pure income play rather than a growth stock.
Final Thoughts
Flowers Foods is a well-established, steady dividend payer with a long track record of rewarding investors. Its nearly 5 percent yield is attractive, but the high payout ratio and slow growth suggest that investors shouldn’t expect rapid increases in the future.
For those looking for a dependable income stream, it remains a solid option in the consumer staples sector. However, its financial flexibility is somewhat constrained, and the stock’s recent decline suggests there may be better entry points for patient investors.
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