Vassiliko Cement Works (CSE:VCW) Is Reducing Its Dividend To €0.06

The board of Vassiliko Cement Works Public Company Ltd (CSE:VCW) has announced that the dividend on 15th of November will be reduced by 25% from last year's €0.08 to €0.06. This means the annual payment is 8.2% of the current stock price, which is above the average for the industry.

Check out the opportunities and risks within the XX Basic Materials industry.

Vassiliko Cement Works Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment was quite easily covered by earnings, but it made up 2,075% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

EPS is set to fall by 7.3% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 103%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was €0.015 in 2012, and the most recent fiscal year payment was €0.21. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth Is Doubtful

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Vassiliko Cement Works has seen earnings per share falling at 7.3% 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.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While Vassiliko Cement Works is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Vassiliko Cement Works has 4 warning signs (and 1 which can't be ignored) we think you should know about. Is Vassiliko Cement Works not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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