Telefônica Brasil (BVMF:VIVT3) Is Increasing Its Dividend To R$0.497

Telefônica Brasil S.A. (BVMF:VIVT3) will increase its dividend from last year's comparable payment on the 18th of July to R$0.497. Based on this payment, the dividend yield for the company will be 4.2%, which is fairly typical for the industry.

View our latest analysis for Telefônica Brasil

Telefônica Brasil's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend was quite easily covered by Telefônica Brasil's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

The next year is set to see EPS grow by 62.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 51% by next year, which is in a pretty sustainable range.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was R$5.02, compared to the most recent full-year payment of R$1.66. The dividend has fallen 67% over that period. A company that decreases its dividend over time generally isn't what we are looking for.

Telefônica Brasil May Find It Hard To Grow The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Telefônica Brasil has seen earnings per share falling at 2.1% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

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. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Telefônica Brasil that investors need to be conscious of moving forward. 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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