Vector Capital (LON:VCAP) Is Paying Out A Larger Dividend Than Last Year

Vector Capital Plc (LON:VCAP) will increase its dividend from last year's comparable payment on the 30th of September to £0.01. Although the dividend is now higher, the yield is only 4.4%, which is below the industry average.

Check out our latest analysis for Vector Capital

Vector Capital's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Based on the last dividend, Vector Capital is earning enough to cover the payment, but then it makes up 155% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to rise by 5.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend.

Vector Capital Doesn't Have A Long Payment History

Without a track record of dividend payments, we can't make a judgement on how stable it has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

Vector Capital May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. However, Vector Capital's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Vector Capital is earning enough to cover the payments, the cash flows are lacking. We don't think Vector Capital is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Vector Capital (of which 1 is concerning!) you should know about. Is Vector Capital 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.