Vunani Limited's (JSE:VUN) investors are due to receive a payment of ZAR0.09 per share on 27th of November. This means the dividend yield will be fairly typical at 7.1%.
See our latest analysis for Vunani
Vunani's Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. The last dividend was quite easily covered by Vunani's 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 2.2% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 78%, which is definitely on the higher side.
Vunani's Dividend Has Lacked Consistency
Vunani has been paying dividends for a while, but the track record isn't stellar. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2014, the dividend has gone from ZAR0.05 total annually to ZAR0.20. This means that it has been growing its distributions at 17% per annum over that time. Vunani has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth May Be Hard To Achieve
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that Vunani's earnings per share has fallen at approximately 2.2% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Vunani has 4 warning signs (and 1 which is significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.