In This Article:
The board of Vp plc (LON:VP.) has announced that the dividend on 7th of August will be increased to £0.275, which will be 3.8% higher than last year's payment of £0.265 which covered the same period. This takes the dividend yield to 5.4%, which shareholders will be pleased with.
See our latest analysis for Vp
Vp Doesn't Earn Enough To Cover Its Payments
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 106% of what it was earning and 87% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.
EPS is forecast to rise very quickly over the next 12 months. Assuming the dividend continues along recent trends, we could see the payout ratio reach 188%, which is on the unsustainable side.
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 £0.123 in 2014 to the most recent total annual payment of £0.38. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Vp's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Vp will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for Vp you should be aware of, and 2 of them don't sit too well with us. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.