Vulcan Materials Company (NYSE:VMC) stock is about to trade ex-dividend in three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Vulcan Materials' shares on or after the 27th of May will not receive the dividend, which will be paid on the 11th of June.
The company's next dividend payment will be US$0.37 per share, and in the last 12 months, the company paid a total of US$1.48 per share. Last year's total dividend payments show that Vulcan Materials has a trailing yield of 0.8% on the current share price of $184.47. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Vulcan Materials paying out a modest 27% of its earnings. A useful secondary check can be to evaluate whether Vulcan Materials generated enough free cash flow to afford its dividend. Luckily it paid out just 22% of its free cash flow last year.
It's positive to see that Vulcan Materials's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Vulcan Materials has grown its earnings rapidly, up 24% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Vulcan Materials has lifted its dividend by approximately 4.0% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Vulcan Materials is keeping back more of its profits to grow the business.
The Bottom Line
Is Vulcan Materials an attractive dividend stock, or better left on the shelf? Vulcan Materials has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Vulcan Materials looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
So while Vulcan Materials looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 1 warning sign for Vulcan Materials that you should be aware of before investing in their shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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