Vector Group (NYSE:VGR) Is Due To Pay A Dividend Of $0.20

The board of Vector Group Ltd. (NYSE:VGR) has announced that it will pay a dividend of $0.20 per share on the 29th of September. This makes the dividend yield 7.7%, which will augment investor returns quite nicely.

See our latest analysis for Vector Group

Vector Group Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Vector Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

EPS is set to grow by 20.7% over the next year if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 542%, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the annual payment back then was $1.03, compared to the most recent full-year payment of $0.80. The dividend has shrunk at around 2.5% 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

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 21% per year over the past five years. EPS has been growing well, but Vector Group has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. Overall, we don't think this company has the makings of a good income stock.

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 potentially serious) we think you should know about. 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.