Here's What We Like About Virtus Health's (ASX:VRT) Upcoming Dividend

By
Simply Wall St
Published
October 03, 2021
ASX:VRT
Source: Shutterstock

It looks like Virtus Health Limited (ASX:VRT) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Virtus Health's shares before the 8th of October in order to receive the dividend, which the company will pay on the 29th of October.

The company's next dividend payment will be AU$0.12 per share, and in the last 12 months, the company paid a total of AU$0.24 per share. Based on the last year's worth of payments, Virtus Health has a trailing yield of 4.1% on the current stock price of A$5.8. 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! We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Virtus Health

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. Virtus Health paid out a comfortable 45% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It distributed 38% of its free cash flow as dividends, a comfortable payout level for most companies.

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.

historic-dividend
ASX:VRT Historic Dividend October 3rd 2021

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Virtus Health earnings per share are up 4.2% per annum over the last five years. Recent growth has not been impressive. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Virtus Health dividends are largely the same as they were eight years ago.

The Bottom Line

Is Virtus Health an attractive dividend stock, or better left on the shelf? Earnings per share have been growing moderately, and Virtus Health is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. It might be nice to see earnings growing faster, but Virtus Health is being conservative with its dividend payouts and could still perform reasonably over the long run. Virtus Health looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 4 warning signs for Virtus Health that you should be aware of before investing in their shares.

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.

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