Banque Cantonale Vaudoise (VTX:BCVN) Is Increasing Its Dividend To CHF3.70

Banque Cantonale Vaudoise (VTX:BCVN) will increase its dividend on the 11th of May to CHF3.70. This will take the annual payment from 4.7% to 4.7% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Banque Cantonale Vaudoise

Banque Cantonale Vaudoise's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment made up 84% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Earnings per share could rise by 4.2% over the next year if things go the same way as they have for the last few years. If recent patterns in the dividend continue, the payout ratio in 12 months could be 89% which is a bit high but can definitely be sustainable.

Banque Cantonale Vaudoise Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from CHF3.20 to CHF3.70. This implies that the company grew its distributions at a yearly rate of about 1.5% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings per share has been crawling upwards at 4.2% per year. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On Banque Cantonale Vaudoise's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Banque Cantonale Vaudoise's payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Banque Cantonale Vaudoise has 2 warning signs (and 1 which is potentially serious) we think you should know about. 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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