VAT Group (VTX:VACN) Will Pay A Larger Dividend Than Last Year At CHF5.50

VAT Group AG's (VTX:VACN) dividend will be increasing to CHF5.50 on 23rd of May. This takes the annual payment to 1.6% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for VAT Group

VAT Group's Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, VAT Group's was paying out quite a large proportion of earnings and 84% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Looking forward, earnings per share is forecast to rise by 26.2% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 62% which brings it into quite a comfortable range.

VAT Group Doesn't Have A Long Payment History

It is great to see that VAT Group has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from CHF4.00 in 2017 to the most recent annual payment of CHF5.50. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.

VAT Group's Dividend Might Lack Growth

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. VAT Group has impressed us by growing EPS at 24% per year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why VAT Group is not retaining those earnings to reinvest in growth.

Our Thoughts On VAT Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Strong earnings growth means VAT Group has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for VAT Group 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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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.