Vunani (JSE:VUN) Has Announced That It Will Be Increasing Its Dividend To R0.14

Vunani Limited's (JSE:VUN) dividend will be increasing on the 27th of June to R0.14, with investors receiving 87% more than last year. This takes the dividend yield from 5.3% to 7.8%, which shareholders will be pleased with.

View our latest analysis for Vunani

Vunani's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Vunani was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business.

If the company can't turn things around, EPS could fall by 2.7% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 93% in the next 12 months which is on the higher end of the range we would say is sustainable.

Vunani's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This makes us cautious about the consistency of the dividend over a full economic cycle. The first annual payment during the last 8 years was R0.05 in 2014, and the most recent fiscal year payment was R0.14. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Vunani has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Vunani's earnings per share has fallen at approximately 2.7% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Vunani will make a great income stock. 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. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 5 warning signs for Vunani that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.