Yahoo Finance Do These 3 Checks Before Buying Vital Limited (NZSE:VTL) For Its Upcoming Dividend
It looks like Vital Limited (NZSE:VTL) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Vital's shares before the 30th of September in order to be eligible for the dividend, which will be paid on the 15th of October.
The upcoming dividend for Vital is NZ$0.024 per share, increased from last year's total dividends per share of NZ$0.02. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Vital has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Vital
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Last year, Vital paid out 98% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. A useful secondary check can be to evaluate whether Vital generated enough free cash flow to afford its dividend. The good news is it paid out just 24% of its free cash flow in the last year.
It's good to see that while Vital's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.
Click here to see how much of its profit Vital paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Vital's earnings per share have fallen at approximately 29% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Vital's dividend payments per share have declined at 21% per year on average over the past 10 years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Final Takeaway
Is Vital an attractive dividend stock, or better left on the shelf? It's never great to see earnings per share declining, especially when a company is paying out 98% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Vital.
With that being said, if you're still considering Vital as an investment, you'll find it beneficial to know what risks this stock is facing. For instance, we've identified 3 warning signs for Vital (1 can't be ignored) you should be aware of.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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