Does Valvoline Inc (NYSE:VVV) Have A Place In Your Portfolio?
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. In the last few years Valvoline Inc (NYSE:VVV) has paid a dividend to shareholders. Today it yields 1.5%. Let’s dig deeper into whether Valvoline should have a place in your portfolio.
View our latest analysis for Valvoline
How I analyze a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
Is it paying an annual yield above 75% of dividend payers?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has dividend per share risen in the past couple of years?
Can it afford to pay the current rate of dividends from its earnings?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does Valvoline fare?
Valvoline has a trailing twelve-month payout ratio of 35%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 23%, leading to a dividend yield of around 1.7%. However, EPS should increase to $1.43, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Valvoline as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Valvoline produces a yield of 1.5%, which is on the low-side for Chemicals stocks.
Next Steps:
Whilst there are few things you may like about Valvoline from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three relevant aspects you should look at:
Future Outlook: What are well-informed industry analysts predicting for VVV’s future growth? Take a look at our free research report of analyst consensus for VVV’s outlook.
Valuation: What is VVV worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether VVV is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
