Beyond Meat (NASDAQ:BYND) has been one of the fastest-growing food manufacturing companies in the U.S. and possibly in the world. The company’s revenue growth has been phenomenal, even during the age of the COVID-19 pandemic.
As of 2Q 2020, Beyond Meat’s revenue growth seemed unstoppable and totaled more than $400 million on a trailing 12-months (TTM) basis, representing a year-on-year growth rate of more than 140%.
However, there is a disadvantage to investing in a high-growth company like Beyond Meat. The problem with buying Beyond Meat’s stock is that the shares do not pay a dividend. Since its IPO, the company has never paid out any dividends.
Here is an excerpt of Beyond Meat’s dividend policy extracted from the 2019 annual filings:
The question is why doesn’t Beyond Meat pay any dividends while most of its peers such as Kellogg and Conagra Brands have already been paying dividends quarter over quarter and year over year?
In this article, we will answer the above question by looking at Beyond Meat’s financials and dive deep into the company’s profitability and cash flow to find out the reason that it has yet to declare an investor-friendly dividend policy.
Without further ado, let’s get the ball rolling!
Beyond Meat’s Revenue Growth
Let’s first look at Beyond Meat’s revenue growth which is shown in the chart above.
According to the chart, Beyond Meat’s trailing 12-months (TTM) revenue has grown explosively from only $88 million in 4Q18 to as much as $401 million in 2Q20, representing a growth rate of almost 500% in just 6 quarters.
The company’s revenue growth has been nothing short of phenomenal.
Unfortunately, dividends are not paid out of revenue, no matter how impressive the revenue growth has been.
Instead, dividends are paid out of profits and free cash flow, which Beyond Meat has yet to have.
Beyond Meat’s Operating Profit
From a profitability standpoint, Beyond Meat has yet to have any profits as reflected by the operating profits shown in the chart above.
Of the 7 quarters in the chart, Beyond Meat has only managed to report a single quarter of positive operating profit.
The company may have made some impressive progress towards profitability.
However, the $6 million of operating profit reported in 1Q20 was far from enough for a company like Beyond Meat which has already burned as much as $26 million in capital expenditures in the 6 months ended on June 2020.
Beyond Meat’s Net Profit
The net profit is arguably one of the most important metrics in determining the dividends paying capability of a company, as it is the profits after tax available to common stockholders.
In general, dividends are paid out of net profits.
In terms of net profitability, Beyond Meat has fared even worse.
Based on the chart above, Beyond Meat has so far failed to generate any positive net profit from 2018 to 2020 on a TTM basis.
Without any net profitability, how can the board of directors at Beyond Meat declare an investor-friendly dividend policy?
Beyond Meat’s Earnings Per Share
The earnings per share or EPS is also another important metric that plays a critical role in deciding the ability of a company to pay out a dividend.
A number of dividend measurement metrics such as the dividend payout ratio and dividend coverage ratio are calculated using the EPS.
Since Beyond Meat’s stock is currently not paying a dividend and has also been suffering losses on a per-share basis, these dividend measurement metrics are meaningless to investors and analysts.
Additionally, Beyond Meat is unlikely to declare a dividend out of a negative EPS based on the plot in the chart, as it is still struggling to generate profitability on a per-share basis.
Beyond Meat’s Free Cash Flow
I am sure you have heard of the saying that goes like this, cash is king. It’s no exception for Beyond Meat when it comes to cash, especially free cash flow. Cash is still the king from Beyond Meat’s business perspective and it is the single most important factor in deciding whether the company can dish out a dividend or not.
As you can see in the chart above, Beyond Meat’s free cash flow has actually been on a decline. In other words, the company is using more cash than the business can generate by the day.
As of 2020 Q2, Beyond Meat’s free cash flow deficit totaled more than $100 million on a TTM basis. The free cash flow deficit in 2Q 2020 has been the worst so far and the company’s free cash flow will likely get worst going into the future.
If Beyond Meat is constantly running into a free cash flow deficit, where does the company get the cash to pay for a dividend?
Beyond Meat’s business operation itself has failed to cover the working capital as well as the capital expenditures required to run and expand the business, let alone a dividend payment.
From the free cash flow results, Beyond Meat is still far from being self-sufficient in terms of cash flow generation. For this reason, Beyond Meat is heavily relying on external capital injections such as debt financing and equity issuance to finance its business operations.
In summary, why doesn’t Beyond Meat’s stock pay dividends? The answer is very simple. From all the analysis that covers from revenue to earnings per share, the company simply can’t afford to pay out a dividend now.
Beyond Meat needs to retain all the profits and the cash that the business generates to survive.
While revenue growth has been phenomenal, the revenue success is not translated into profitability and positive free cash flow.
As of now, Beyond Meat doesn’t pay a dividend, it’s as simple as that.
Credits and References
1. Financial figures in all charts on this webpage were obtained and referenced from BYND’s quarterly and annual filings between 2018 and 2020 which can be found in the following location: Beyond Meat’s Earnings Releases.
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