Stock Analysis

Vecima Networks (TSE:VCM) Will Pay A Dividend Of CA$0.055

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TSX:VCM
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The board of Vecima Networks Inc. (TSE:VCM) has announced that it will pay a dividend on the 18th of March, with investors receiving CA$0.055 per share. This payment means the dividend yield will be 1.3%, which is below the average for the industry.

Check out our latest analysis for Vecima Networks

Vecima Networks' Dividend Is Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Vecima Networks was paying a whopping 1,039% as a dividend, but this only made up 18% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Looking forward, earnings per share is forecast to rise by 63.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 23% by next year, which is in a pretty sustainable range.

historic-dividend
TSX:VCM Historic Dividend February 17th 2024

Vecima Networks Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 9 years was CA$0.18 in 2015, and the most recent fiscal year payment was CA$0.22. This works out to be a compound annual growth rate (CAGR) of approximately 2.3% a year over that time. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Vecima Networks has grown earnings per share at 41% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

Our Thoughts On Vecima Networks' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Vecima Networks' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Vecima Networks that you should be aware of before investing. Is Vecima Networks not quite the opportunity you were looking for? Why not check out our selection of top 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.