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Ventia Services Group Limited (ASX:VNT) has announced that it will be increasing its dividend from last year's comparable payment on the 7th of April to A$0.1063. This makes the dividend yield 4.7%, which is above the industry average.
See our latest analysis for Ventia Services Group
Ventia Services Group's Payment Could Potentially Have Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Ventia Services Group was paying out 78% of earnings, but a comparatively small 60% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
The next year is set to see EPS grow by 28.5%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 60% which would be quite comfortable going to take the dividend forward.
Ventia Services Group Doesn't Have A Long Payment History
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of A$0.0147 in 2022 to the most recent total annual payment of A$0.2. This means that it has been growing its distributions at 139% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
Ventia Services Group's Dividend Might Lack Growth
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Ventia Services Group has been growing its earnings per share at 21% a year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Ventia Services Group is not retaining those earnings to reinvest in growth.
In Summary
Overall, we always like to see the dividend being raised, but we don't think Ventia Services Group will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.