Yahoo Finance Read This Before Considering Virtu Financial, Inc. (NASDAQ:VIRT) For Its Upcoming US$0.24 Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Virtu Financial, Inc. (NASDAQ:VIRT) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 30th of November, you won't be eligible to receive this dividend, when it is paid on the 15th of December.
Virtu Financial's next dividend payment will be US$0.24 per share, and in the last 12 months, the company paid a total of US$0.96 per share. Calculating the last year's worth of payments shows that Virtu Financial has a trailing yield of 4.2% on the current share price of $22.68. If you buy this business for its dividend, you should have an idea of whether Virtu Financial's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Virtu Financial
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Virtu Financial paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see Virtu Financial's earnings per share have dropped 6.9% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Virtu Financial dividends are largely the same as they were five years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
Final Takeaway
Should investors buy Virtu Financial for the upcoming dividend? Virtu Financial's earnings per share are down over the past five years, although it has the cushion of a low payout ratio, which would suggest a cut to the dividend is relatively unlikely. At best we would put it on a watch-list to see if business conditions improve, as it doesn't look like a clear opportunity right now.
However if you're still interested in Virtu Financial as a potential investment, you should definitely consider some of the risks involved with Virtu Financial. To help with this, we've discovered 3 warning signs for Virtu Financial (1 is significant!) that you ought to be aware of before buying the shares.
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. 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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