VLS Finance (NSE:VLSFINANCE) Has Announced A Dividend Of ₹1.50

The board of 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.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that VLS Finance's stock price has increased by 31% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for VLS Finance

VLS Finance's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, VLS Finance was paying only paying out a fraction of earnings, but the payment was a massive 105% of cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

If the trend of the last few years continues, EPS will grow by 53.1% over the next 12 months. Assuming the dividend continues along recent trends, we think the payout ratio could be 1.9% by next year, which is in a pretty sustainable range.

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. Since 2017, the dividend has gone from ₹1.00 total annually to ₹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. We are encouraged to see that VLS Finance has grown earnings per share at 53% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about VLS Finance's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We don't think VLS Finance is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for VLS Finance that investors need to be conscious of moving forward. Is VLS Finance not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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