VLS Finance (NSE:VLSFINANCE) Has Affirmed Its Dividend Of ₹1.50

The board of VLS Finance Limited (NSE:VLSFINANCE) has announced that it will pay a dividend on the 29th of October, with investors receiving ₹1.50 per share. Including this payment, the dividend yield on the stock will be 0.9%, which is a modest boost for shareholders' returns.

See our latest analysis for VLS Finance

VLS Finance's Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, VLS Finance was paying a whopping 105% as a dividend, but this only made up 10% of its overall earnings. The business might be trying to strike a balance between returning cash to shareholders and reinvesting back into the business, but this high of a payout ratio could definitely force the dividend to be cut if the company runs into a bit of a tough spot.

Over the next year, EPS could expand by 19.8% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 8.4%, which is in the range that makes us comfortable with the sustainability of the dividend.

VLS Finance Doesn't Have A Long Payment History

VLS Finance's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2017, the annual payment back then was ₹1.00, compared to the most recent full-year payment of ₹1.50. This means that it has been growing its distributions at 7.0% per annum over that time. VLS Finance has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that VLS Finance has been growing its earnings per share at 20% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While VLS Finance is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

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. For example, we've picked out 2 warning signs for VLS Finance 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.