Vunani's (JSE:VUN) Upcoming Dividend Will Be Larger Than Last Year's

The board of Vunani Limited (JSE:VUN) has announced that the dividend on 14th of November will be increased to ZAR0.09, which will be 38% higher than last year's payment of ZAR0.065 which covered the same period. This makes the dividend yield about the same as the industry average at 6.8%.

See our latest analysis for Vunani

Vunani's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. The last dividend was quite easily covered by Vunani's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Looking forward, earnings per share could rise by 8.2% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 74% by next year, which we think can be pretty sustainable going forward.

Vunani's Dividend Has Lacked Consistency

Vunani has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2013, the dividend has gone from ZAR0.05 total annually to ZAR0.205. This means that it has been growing its distributions at 17% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Vunani has seen EPS rising for the last five years, at 8.2% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

Vunani Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Vunani is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Vunani that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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