Vp's (LON:VP.) Dividend Will Be Increased To £0.275

Vp plc's (LON:VP.) periodic dividend will be increasing on the 7th of August to £0.275, with investors receiving 3.8% more than last year's £0.265. This will take the dividend yield to an attractive 5.4%, providing a nice boost to shareholder returns.

See our latest analysis for Vp

Vp Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, the dividend made up 87% of cash flows, but a higher proportion of net income. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

EPS is forecast to rise very quickly over the next 12 months. If recent patterns in the dividend continues, we would start to get a bit worried, with the payout ratio possibly reaching 188%.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of £0.123 in 2014 to the most recent total annual payment of £0.38. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Although it's important to note that Vp's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

Vp's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Vp's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 4 warning signs for Vp (2 shouldn't be ignored!) that you should be aware of before investing. Is Vp 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.