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Vinci Partners Investments Ltd. (NASDAQ:VINP) is reducing its dividend from last year's comparable payment to R$0.16 on the 5th of December. However, the dividend yield of 5.8% is still a decent boost to shareholder returns.
See our latest analysis for Vinci Partners Investments
Vinci Partners Investments' Future Dividend Projections Appear Well Covered By Earnings
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Vinci Partners Investments' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
The next year is set to see EPS grow by 74.7%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 13% which brings it into quite a comfortable range.
Vinci Partners Investments' Dividend Has Lacked Consistency
Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2021, the annual payment back then was R$3.1, compared to the most recent full-year payment of R$3.6. This works out to be a compound annual growth rate (CAGR) of approximately 5.1% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend Has Limited Growth Potential
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. Vinci Partners Investments' earnings per share has shrunk at 28% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
The Dividend Could Prove To Be Unreliable
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.