Vital Limited's (NZSE:VTL) dividend is being reduced to NZ$0.024 on the 15th of October. However, the dividend yield of 3.5% still remains in a typical range for the industry.
Check out our latest analysis for Vital
Vital Is Paying Out More Than It Is Earning
Unless the payments are sustainable, the dividend yield doesn't mean too much. Based on the last payment, Vital's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
EPS is set to fall by 27.7% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 143%, which is definitely a bit high to be sustainable going forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from NZ$0.20 in 2011 to the most recent annual payment of NZ$0.02. The dividend has fallen 90% over that period. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Has Limited Growth Potential
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Earnings per share has been sinking by 28% over the last five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.
Vital's Dividend Doesn't Look Sustainable
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Vital is a great stock to add to your portfolio if income is your focus.
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. For example, we've identified 6 warning signs for Vital (1 makes us a bit uncomfortable!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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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.
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About NZSE:VTL
Vital
Provides mobile radio networks and high-speed broadband services in New Zealand.
Good value with acceptable track record.
