Stock Analysis

It Might Not Be A Great Idea To Buy VSE Corporation (NASDAQ:VSEC) For Its Next Dividend

  •  Updated
NasdaqGS:VSEC
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see VSE Corporation (NASDAQ:VSEC) is about to trade ex-dividend in the next four days. You can purchase shares before the 26th of January in order to receive the dividend, which the company will pay on the 10th of February.

VSE's next dividend payment will be US$0.09 per share, and in the last 12 months, the company paid a total of US$0.36 per share. Last year's total dividend payments show that VSE has a trailing yield of 0.9% on the current share price of $39.88. If you buy this business for its dividend, you should have an idea of whether VSE's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for VSE

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. VSE's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If VSE didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 13% of its free cash flow in the last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NasdaqGS:VSEC Historic Dividend January 21st 2021

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. VSE reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. VSE has delivered 14% dividend growth per year on average over the past 10 years.

We update our analysis on VSE every 24 hours, so you can always get the latest insights on its financial health, here.

To Sum It Up

Is VSE worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think VSE is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

So if you're still interested in VSE despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 2 warning signs with VSE (at least 1 which is significant), and understanding them should be part of your investment process.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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What are the risks and opportunities for VSE?

VSE Corporation operates as a diversified aftermarket products and services company in the United States.

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Rewards

  • Trading at 85.4% below our estimate of its fair value

  • Earnings are forecast to grow 17.24% per year

  • Earnings grew by 278.1% over the past year

Risks

  • Debt is not well covered by operating cash flow

  • Significant insider selling over the past 3 months

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