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 29th of June, with investors receiving $0.20 per share. This means the dividend yield will be fairly typical at 6.3%.

See our latest analysis for Vector Group

Vector Group's Dividend Is Well Covered By Earnings

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Vector Group's dividend made up quite a large proportion of earnings but only 59% 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.

If the trend of the last few years continues, EPS will grow by 10.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 71%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the dividend has gone from $1.08 total annually to $0.80. This works out to be a decline of approximately 3.0% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Vector Group Might Find It Hard To Grow Its Dividend

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. Vector Group has impressed us by growing EPS at 10% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Vector Group's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Vector Group you should be aware of, and 2 of them make us uncomfortable. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.