Vesuvius (LON:VSVS) Will Pay A Larger Dividend Than Last Year At £0.164

Vesuvius plc (LON:VSVS) has announced that it will be increasing its dividend from last year's comparable payment on the 6th of June to £0.164. This will take the annual payment to 7.5% of the stock price, which is above what most companies in the industry pay.

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Vesuvius' Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. At the time of the last dividend payment, Vesuvius was paying out a very large proportion of what it was earning and 102% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

The next year is set to see EPS grow by 52.0%. If the dividend continues on this path, the payout ratio could be 45% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Vesuvius

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. Since 2015, the annual payment back then was £0.153, compared to the most recent full-year payment of £0.235. This implies that the company grew its distributions at a yearly rate of about 4.4% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Vesuvius May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 3.5% per year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Vesuvius will make a great income stock. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Vesuvius that you should be aware of before investing. Is Vesuvius not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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