Vital (NZSE:VTL) Will Pay A Smaller Dividend Than Last Year

Vital Limited (NZSE:VTL) has announced it will be reducing its dividend payable on the 15th of October to NZ$0.024, which is 20% lower than what investors received last year. This payment takes the dividend yield to 3.2%, which only provides a modest boost to overall returns.

View our latest analysis for Vital

Vital Is Paying Out More Than It Is Earning

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Vital's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

If the company can't turn things around, EPS could fall by 27.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 143%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2011, the dividend has gone from NZ$0.20 to NZ$0.025. The dividend has fallen 88% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Vital's EPS has fallen by approximately 28% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Vital's Dividend Doesn't Look Sustainable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Vital has 5 warning signs (and 1 which is concerning) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

If you’re looking to trade a wide range of investments, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.