The board of Videndum Plc (LON:VID) has announced that it will be paying its dividend of £0.25 on the 19th of May, an increased payment from last year's comparable dividend. Even though the dividend went up, the yield is still quite low at only 4.3%.
Check out our latest analysis for Videndum
Videndum's Earnings Easily Cover The Distributions
If it is predictable over a long period, even low dividend yields can be attractive. Prior to this announcement, Videndum's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
EPS is set to fall by 14.6% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 65%, which is comfortable for the company to continue in the future.
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 dividend has gone from an annual total of £0.205 in 2013 to the most recent total annual payment of £0.40. This implies that the company grew its distributions at a yearly rate of about 6.9% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Videndum might have put its house in order since then, but we remain 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. Videndum has seen EPS rising for the last five years, at 25% per annum. Videndum is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
We Really Like Videndum's Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Videndum that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.