Vesuvius (LON:VSVS) Is Paying Out A Larger Dividend Than Last Year

The board of Vesuvius plc (LON:VSVS) has announced that it will be increasing its dividend by 4.9% on the 27th of May to UK£0.15. This takes the dividend yield from 6.2% to 6.2%, which shareholders will be pleased with.

View our latest analysis for Vesuvius

Vesuvius' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Vesuvius' earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to fall by 4.8% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 58%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The first annual payment during the last 10 years was UK£0.14 in 2012, and the most recent fiscal year payment was UK£0.21. This implies that the company grew its distributions at a yearly rate of about 3.9% over that duration. 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 evaluate if earnings per share is growing, which could point to a growing dividend in the future. Vesuvius has impressed us by growing EPS at 17% per 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.

Our Thoughts On Vesuvius' Dividend

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. We would probably look elsewhere for an income investment.

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 instance, we've picked out 2 warning signs for Vesuvius that investors should take into consideration. Is Vesuvius not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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