It looks like Venture Corporation Limited (SGX:V03) is about to go ex-dividend in the next 4 days. You can purchase shares before the 10th of May in order to receive the dividend, which the company will pay on the 25th of May.
Venture's next dividend payment will be S$0.50 per share, and in the last 12 months, the company paid a total of S$0.75 per share. Based on the last year's worth of payments, Venture has a trailing yield of 3.9% on the current stock price of SGD19.31. If you buy this business for its dividend, you should have an idea of whether Venture's dividend is reliable and sustainable. So we need to investigate whether Venture can afford its dividend, and if the dividend could grow.
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. Venture is paying out an acceptable 73% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 51% of its free cash flow as dividends, within the usual range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Venture's earnings per share have been growing at 13% a year for the past five years. Venture is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Venture has lifted its dividend by approximately 3.2% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Venture is keeping back more of its profits to grow the business.
Should investors buy Venture for the upcoming dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Venture's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 73% and 51% respectively. In summary, while it has some positive characteristics, we're not inclined to race out and buy Venture today.
In light of that, while Venture has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for Venture you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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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