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

VLS Finance Limited (NSE:VLSFINANCE) has announced that it will pay a dividend of ₹1.50 per share on the 29th of October. Including this payment, the dividend yield on the stock will be 0.7%, which is a modest boost for shareholders' returns.

Check out our latest analysis for VLS Finance

VLS Finance's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, VLS Finance's dividend was only 10% of earnings, however it was paying out 105% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Looking forward, earnings per share could rise by 53.1% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 1.9% by next year, which we think can be pretty sustainable going forward.

VLS Finance Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 6 years was ₹1.00 in 2017, and the most recent fiscal year payment was ₹1.50. This works out to be a compound annual growth rate (CAGR) of approximately 7.0% a year over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider VLS Finance to be a consistent dividend paying stock.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. VLS Finance has impressed us by growing EPS at 53% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On VLS Finance's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for VLS Finance that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.