The board of Vesuvius plc (LON:VSVS) has announced that the dividend on 16th of September will be increased to £0.065, which will be 4.8% higher than last year's payment of £0.062 which covered the same period. This will take the annual payment to 5.9% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for Vesuvius
Vesuvius' Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Vesuvius' earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to fall by 5.6%. If the dividend continues along recent trends, we estimate the payout ratio could be 45%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of £0.145 in 2012 to the most recent total annual payment of £0.212. This works out to be a compound annual growth rate (CAGR) of approximately 3.9% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Vesuvius has been growing its earnings per share at 17% a year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Vesuvius' payments are rock solid. While Vesuvius is earning enough to cover the payments, the cash flows are lacking. 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. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Vesuvius that investors should know about before committing capital to this stock. 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.
About LSE:VSVS
Vesuvius
Provides molten metal flow engineering and technology services to steel and foundry casting industries worldwide.
Flawless balance sheet, undervalued and pays a dividend.
