U.S. markets open in 2 hours 32 minutes
  • S&P Futures

    4,260.75
    +4.75 (+0.11%)
     
  • Dow Futures

    34,187.00
    +105.00 (+0.31%)
     
  • Nasdaq Futures

    14,380.00
    +25.75 (+0.18%)
     
  • Russell 2000 Futures

    2,334.60
    +3.40 (+0.15%)
     
  • Crude Oil

    73.07
    -0.23 (-0.31%)
     
  • Gold

    1,782.60
    +5.90 (+0.33%)
     
  • Silver

    26.25
    +0.20 (+0.75%)
     
  • EUR/USD

    1.1952
    +0.0017 (+0.14%)
     
  • 10-Yr Bond

    1.4870
    0.0000 (0.00%)
     
  • Vix

    16.02
    -0.30 (-1.84%)
     
  • GBP/USD

    1.3899
    -0.0022 (-0.16%)
     
  • USD/JPY

    110.7610
    -0.0740 (-0.07%)
     
  • BTC-USD

    33,689.14
    +427.45 (+1.29%)
     
  • CMC Crypto 200

    804.26
    +17.64 (+2.24%)
     
  • FTSE 100

    7,117.95
    +7.98 (+0.11%)
     
  • Nikkei 225

    29,066.18
    +190.95 (+0.66%)
     

Here's Why We're Wary Of Buying Victrex's (LON:VCT) For Its Upcoming Dividend

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Victrex plc (LON:VCT) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Victrex's shares before the 3rd of June in order to receive the dividend, which the company will pay on the 30th of June.

The company's next dividend payment will be UK£0.13 per share, and in the last 12 months, the company paid a total of UK£0.27 per share. Based on the last year's worth of payments, Victrex has a trailing yield of 1.1% on the current stock price of £24.16. If you buy this business for its dividend, you should have an idea of whether Victrex's dividend is reliable and sustainable. As a result, readers should always check whether Victrex has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Victrex

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Victrex paid out 96% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (67%) of its free cash flow in the past year, which is within an average range for most companies.

It's good to see that while Victrex's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Victrex's earnings per share have fallen at approximately 8.7% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Victrex has lifted its dividend by approximately 0.7% a year on average.

Final Takeaway

Is Victrex an attractive dividend stock, or better left on the shelf? Earnings per share have been shrinking in recent times. Worse, Victrex's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. It's not that we think Victrex is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Although, if you're still interested in Victrex and want to know more, you'll find it very useful to know what risks this stock faces. Case in point: We've spotted 1 warning sign for Victrex you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.