A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, VSE Corporation (NASDAQ:VSEC) has paid a dividend to shareholders. It currently yields 1.0%. Let’s dig deeper into whether VSE should have a place in your portfolio.
5 questions I ask before picking a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does VSE fare?
The current trailing twelve-month payout ratio for the stock is 7.5%, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Although VSEC’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
In terms of its peers, VSE generates a yield of 1.0%, which is on the low-side for Commercial Services stocks.
After digging a little deeper into VSE’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. 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. Below, I’ve compiled three relevant factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for VSEC’s future growth? Take a look at our free research report of analyst consensus for VSEC’s outlook.
- Valuation: What is VSEC 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 VSEC 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 firstname.lastname@example.org.