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Vestis Corporation (NYSE:VSTS) is about to trade ex-dividend in the next two days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Vestis' shares before the 21st of February to receive the dividend, which will be paid on the 18th of March.
The company's upcoming dividend is US$0.035 a share, following on from the last 12 months, when the company distributed a total of US$0.14 per share to shareholders. Based on the last year's worth of payments, Vestis stock has a trailing yield of around 1.0% on the current share price of US$13.69. If you buy this business for its dividend, you should have an idea of whether Vestis's dividend is reliable and sustainable. So we need to investigate whether Vestis can afford its dividend, and if the dividend could grow.
See our latest analysis for Vestis
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Vestis distributed an unsustainably high 193% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 6.0% of its free cash flow as dividends last year, which is conservatively low.
It's good to see that while Vestis's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. From this perspective, we're disturbed to see earnings per share plunged 95% over the last 12 months, and we'd wonder if the company has had some kind of major event that has skewed the calculation.