Telefônica Brasil (BVMF:VIVT3) Has Announced That It Will Be Increasing Its Dividend To R$0.091

The board of Telefônica Brasil S.A. (BVMF:VIVT3) has announced that it will be increasing its dividend on the 31st of July to R$0.091. This takes the dividend yield from 4.1% to 6.5%, which shareholders will be pleased with.

See our latest analysis for Telefônica Brasil

Telefônica Brasil Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, Telefônica Brasil's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

The next 12 months is set to see EPS grow by 9.9%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 103% over the next year.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from R$3.78 to R$2.04. This works out to be a decline of approximately 6.0% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Telefônica Brasil May Find It Hard To Grow The Dividend

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Earnings per share has been crawling upwards at 4.5% per year. So the company has struggled to grow its EPS yet it's still paying out 110% of its earnings. This gives limited room for the company to raise the dividend in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Telefônica Brasil's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Telefônica Brasil you should be aware of, and 1 of them makes us a bit uncomfortable. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.