V.F (NYSE:VFC) Is Paying Out Less In Dividends Than Last Year

V.F. Corporation's (NYSE:VFC) dividend is being reduced from last year's payment covering the same period to $0.30 on the 21st of March. This means the annual payment is 4.6% of the current stock price, which is above the average for the industry.

View our latest analysis for V.F

V.F's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the dividend made up 188% of earnings, and the company was generating negative free cash flows. This high of a dividend payment could start to put pressure on the balance sheet in the future.

According to analysts, EPS should be several times higher next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 57% which is fairly sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was $0.72, compared to the most recent full-year payment of $1.20. This means that it has been growing its distributions at 5.2% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. V.F might have put its house in order since then, but we remain cautious.

There Isn't Much Room To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that V.F has been growing its earnings per share at 9.7% a year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.

V.F'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. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for V.F (of which 2 are potentially serious!) you should know about. Is V.F not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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