Vail Resorts (NYSE:MTN) Is Increasing Its Dividend To $2.22

The board of Vail Resorts, Inc. (NYSE:MTN) has announced that the dividend on 11th of April will be increased to $2.22, which will be 7.8% higher than last year's payment of $2.06 which covered the same period. This makes the dividend yield 3.7%, which is above the industry average.

See our latest analysis for Vail Resorts

Vail Resorts' Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the dividend made up 85% of cash flows, but a higher proportion of net income. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to expand by 74.6%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 86% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from $0.83 total annually to $8.24. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Achieve

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Although it's important to note that Vail Resorts' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Vail Resorts' payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

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 instance, we've picked out 3 warning signs for Vail Resorts that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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