Vector Capital (LON:VCAP) Has Announced That It Will Be Increasing Its Dividend To £0.0153

Vector Capital Plc (LON:VCAP) has announced that it will be increasing its periodic dividend on the 1st of June to £0.0153, which will be 1.3% higher than last year's comparable payment amount of £0.0151. This takes the annual payment to 6.8% of the current stock price, which is about average for the industry.

View our latest analysis for Vector Capital

Vector Capital's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last dividend, Vector Capital is earning enough to cover the payment, but then it makes up 463% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Unless the company can turn things around, EPS could fall by 3.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 53%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Vector Capital's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2021, the annual payment back then was £0.0143, compared to the most recent full-year payment of £0.0253. This implies that the company grew its distributions at a yearly rate of about 33% over that duration. 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

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's not great to see that Vector Capital's earnings per share has fallen at approximately 3.2% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Vector Capital's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Vector Capital's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Vector Capital you should be aware of, and 1 of them is potentially serious. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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