VICOM Ltd (SGX:WJP) Is About To Go Ex-Dividend, And It Pays A 3.7% Yield

It looks like VICOM Ltd (SGX:WJP) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase VICOM's shares before the 18th of August in order to receive the dividend, which the company will pay on the 26th of August.

The company's next dividend payment will be S$0.031 per share. Last year, in total, the company distributed S$0.06 to shareholders. Looking at the last 12 months of distributions, VICOM has a trailing yield of approximately 3.7% on its current stock price of S$1.61. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

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Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. VICOM paid out more than half (70%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (85%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that VICOM's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for VICOM

Click here to see how much of its profit VICOM paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That explains why we're not overly excited about VICOM's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. A high payout ratio of 70% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, VICOM could be signalling that its future growth prospects are thin.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. VICOM's dividend payments are effectively flat on where they were 10 years ago.

The Bottom Line

Should investors buy VICOM for the upcoming dividend? VICOM has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear unsustainable. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of VICOM's dividend merits.

If you want to look further into VICOM, it's worth knowing the risks this business faces. For example - VICOM has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.