Vulcan Materials Company (NYSE:VMC) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Vulcan Materials Company (NYSE:VMC) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 18th of November in order to be eligible for this dividend, which will be paid on the 5th of December.

Vulcan Materials's next dividend payment will be US$0.3 per share, and in the last 12 months, the company paid a total of US$1.2 per share. Last year's total dividend payments show that Vulcan Materials has a trailing yield of 0.9% on the current share price of $136.51. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Vulcan Materials

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Vulcan Materials paid out a comfortable 26% of its profit last year. A useful secondary check can be to evaluate whether Vulcan Materials generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 33% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Vulcan Materials's earnings have been skyrocketing, up 96% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Vulcan Materials has seen its dividend decline 4.5% per annum on average over the past ten years, which is not great to see. Vulcan Materials is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Should investors buy Vulcan Materials for the upcoming dividend? It's great that Vulcan Materials is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Vulcan Materials looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Ever wonder what the future holds for Vulcan Materials? See what the 15 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.