Vector Group (NYSE:VGR) Has Affirmed Its Dividend Of $0.20

The board of Vector Group Ltd. (NYSE:VGR) has announced that it will pay a dividend on the 20th of December, with investors receiving $0.20 per share. Based on this payment, the dividend yield on the company's stock will be 7.2%, which is an attractive boost to shareholder returns.

Our analysis indicates that VGR is potentially undervalued!

Vector Group Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Vector Group was paying out 89% of earnings, but a comparatively small 47% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

EPS is set to grow by 25.1% over the next year if recent trends continue. If the dividend continues on its recent course, the payout ratio in 12 months could be 484%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of $1.08 in 2012 to the most recent total annual payment of $0.80. The dividend has shrunk at around 3.0% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Vector Group's Dividend Might Lack Growth

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Vector Group has grown earnings per share at 25% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Vector Group hasn't been doing.

Our Thoughts On Vector Group's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Vector Group has 5 warning signs (and 2 which are a bit unpleasant) we think you should know about. Is Vector Group not quite the opportunity you were looking for? Why not check out 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.