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It looks like Valvoline Inc. (NYSE:VVV) is about to go ex-dividend in the next three days. You will need to purchase shares before the 27th of November to receive the dividend, which will be paid on the 15th of December.
Valvoline's next dividend payment will be US$0.13 per share. Last year, in total, the company distributed US$0.50 to shareholders. Last year's total dividend payments show that Valvoline has a trailing yield of 2.2% on the current share price of $22.58. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for Valvoline
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Valvoline paid out a comfortable 27% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 38% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at Valvoline, with earnings per share up 8.0% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past four years, Valvoline has increased its dividend at approximately 26% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.