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Marriott Vacations Worldwide Corporation (NYSE:VAC) has announced that it will be increasing its periodic dividend on the 3rd of January to $0.79, which will be 3.9% higher than last year's comparable payment amount of $0.76. This makes the dividend yield 3.2%, which is above the industry average.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Marriott Vacations Worldwide's stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
See our latest analysis for Marriott Vacations Worldwide
Marriott Vacations Worldwide's Payment Could Potentially Have Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 154% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
The next year is set to see EPS grow by 66.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 36%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $1.00 in 2014, and the most recent fiscal year payment was $3.04. This means that it has been growing its distributions at 12% 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 Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Marriott Vacations Worldwide has seen EPS rising for the last five years, at 19% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.
Our Thoughts On Marriott Vacations Worldwide's Dividend
Overall, we always like to see the dividend being raised, but we don't think Marriott Vacations Worldwide will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.