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 1Q 2021, Beyond Meat’s revenue growth seemed unstoppable and totaled almost $418 million on a trailing 12-months (TTM) basis, representing a year-on-year growth rate of nearly 20%.
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 in May 2019, Beyond Meat has never paid any dividends.
Here is an excerpt of Beyond Meat’s dividend policy extracted from the 2020 annual report:
The question is why Beyond Meat doesn’t pay dividends while most of its peers such as Kellogg and Conagra Brands have already been regularly paying dividends.
In this article, we will dive into Beyond Meat’s financials and find out what has been going on with the company.
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 reported in fiscal 4Q18 to as much as $418 million reported in fiscal 1Q21, representing a compounded annual growth rate or CAGR of nearly 200% in just 2 years.
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 all 10 quarters, Beyond Meat has only managed to report a single quarter of positive operating profit which was during 1Q 2020 at $6.6 million USD on a TTM basis.
The company may have made some impressive progress towards profitability in the past but its operating loss has been getting worse going into fiscal 2021.
Instead of a narrowing loss, Beyond Meat’s operating losses have actually increased in the last couple of quarters and were the largest in fiscal 2021 Q1 at $76 million on a TTM basis.
To make matter worse, Beyond Meat’s losses are projected to get even worse by the end of fiscal 2021 and fiscal 2022, due possibly to the disruptions triggered by the COVID-19 pandemic.
Given the worsening operating loss, Beyond Meat just does not have the financial capability to initiate a cash dividend now and in the near future.
Beyond Meat’s Net Profit
The net profit or net earnings is arguably one of the most important metrics in determining the dividend-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 earnings from fiscal 2018 to fiscal 2021 on a TTM basis.
In fact, Beyond Meat’s net earnings have declined and have become net losses throughout most of the quarterly results.
As of fiscal 1Q 2021, Beyond Meat’s net loss amounted to $82 million, one of the largest losses the company has ever reported.
Without any net earnings, how can the board of directors of Beyond Meat ever declare an investor-friendly dividend policy?
Again, Beyond Meat’s losses will not just stop here and are projected to worsen by the end of fiscal 2021 and 2022.
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 which is the cash left after accounting for capital spendings.
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 and is getting worse.
In fact, Beyond Meat has been using more cash than the business can generate as its free cash flow has been negative throughout most quarterly results.
As of fiscal 2021 Q1, Beyond Meat’s free cash flow deficit totaled nearly $138 million on a TTM basis, the largest the company has ever reported.
Given that Beyond Meat’s earnings are expected to deteriorate going into 2021 and 2022, the company’s free cash flow will likely get worst too going into the future.
Therefore, if Beyond Meat is constantly running into a free cash flow deficit, how on earth can the company get the cash necessary to pay for dividends?
Beyond Meat’s business operation itself has already failed to cover the working capital as well as the investment required to run and expand the business, let alone a dividend payment.
From the free cash flow results, Beyond Meat is still far from 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.
As such, a cash dividend by Beyond Meat is definitely out of the question for now.
Beyond Meat’s Projected Earnings Growth
Dividends are actually declared based on future earnings and free cash flow projected by the company.
If the company’s future earnings and free cash flow is projected to be worse than the current fiscal year, a dividend-paying company may cut or even suspend the cash dividends.
It is the same case for a non-dividend paying company such as Beyond Meat.
If future profitability is expected to decline, Beyond Meat will definitely reverse its decision on paying a cash dividend or may not even declare an investor-friendly dividend policy.
In Beyond Meat’s case, its fiscal 2021 and 2022 earnings are expected to decline as shown in the snapshot above.
For example, Beyond Meat’s non-GAAP earnings are estimated at -$0.90 USD per share by the end of fiscal 2021 and -$0.18 USD per share by fiscal 2022, according to the estimates of 14 analysts.
Therefore, Beyond Meat is expected to earn nothing and even lose money in the future despite having a projected revenue growth rate of nearly 40% for fiscal 2021 and more than 50% for fiscal 2022.
This is another compelling reason why Beyond Meat does not pay a dividend now and in the near future given that the company is expected to make a loss in 2 consecutive years.
In summary, why doesn’t Beyond Meat’s stock pay dividends?
The obvious reason is that the company has neither a profit nor free cash flow to pay a dividend.
The company does not even generate sufficient cash to support its own operations, let alone a dividend.
All in all, Beyond Meat simply does not have the financial means to pay a dividend now.
Additionally, Beyond Meat is also expected to continue to generate negative non-GAAP earnings going into fiscal 2021 and 2022.
For now, Beyond Meat needs to retain all profits and cash, if there are any, to sustain itself and keep the company afloat.
While revenue growth has been phenomenal, Beyond Meat’s revenue success is not translated into profitability and positive free cash flow.
Therefore, 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 2021 which can be found in the following location: Beyond Meat’s Earnings Releases.
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