Read This Before Considering VINCI SA (EPA:DG) For Its Upcoming €0.65 Dividend

By
Simply Wall St
Published
November 11, 2021
ENXTPA:DG
Source: Shutterstock

VINCI SA (EPA:DG) is about to trade ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase VINCI's shares on or after the 16th of November will not receive the dividend, which will be paid on the 18th of November.

The company's next dividend payment will be €0.65 per share, on the back of last year when the company paid a total of €1.30 to shareholders. Based on the last year's worth of payments, VINCI stock has a trailing yield of around 1.4% on the current share price of €93.9. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for VINCI

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. VINCI paid out 68% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 36% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
ENXTPA:DG Historic Dividend November 12th 2021

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about VINCI's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. VINCI's dividend payments per share have declined at 2.5% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

Has VINCI got what it takes to maintain its dividend payments? Earnings per share have been flat and VINCI's dividend payouts are within reasonable limits; without a sharp decline in earnings we feel that the dividend is likely somewhat sustainable. In summary, while it has some positive characteristics, we're not inclined to race out and buy VINCI today.

While it's tempting to invest in VINCI for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for VINCI and you should be aware of them before buying any shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.