VAT Group's (VTX:VACN) Shareholders Will Receive A Bigger Dividend Than Last Year

VAT Group AG's (VTX:VACN) dividend will be increasing to CHF5.50 on 23rd of May. This takes the annual payment to 1.8% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for VAT Group

VAT Group's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend made up a very large portion of earnings and also represented 84% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Looking forward, earnings per share is forecast to rise by 23.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 64%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

VAT Group Is Still Building Its Track Record

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. VAT Group has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

VAT Group Might Find It Hard To Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see VAT Group has been growing its earnings per share at 24% a 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.

In Summary

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. This company is not in the top tier of income providing stocks.

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. For example, we've picked out 2 warning signs for VAT Group that investors should know about before committing capital to this stock. Is VAT Group 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.