Lamb Weston’s (NYSE: LW) FQ1 report and guidance update affirm that the king of spuds is no dud. This company reaffirmed its guidance, which in turn reaffirms the cash flow and capital return outlook, and the capital return is solid. This FMCG (fast-moving consumer goods) company pays a substantial dividend and buys back shares aggressively, providing leverage for long-term investors and potential for a double-digit total return over time.
Lamb Weston’s dividend is attractive enough for investment in its own right. The stock yields 2.5% in early October and is accompanied by a positive outlook for distribution increases. The payout ratio is relatively high compared to the earnings outlook, at about 60%, but not an insurmountable level, and is in alignment with its industry. The more critical ratio is the cash flow payout ratio, which was only 17% in Q1, low enough for investors to assume the double-digit distribution CAGR will be sustained.
