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Readers hoping to buy Vector Group Ltd. (NYSE:VGR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Vector Group's shares before the 9th of December to receive the dividend, which will be paid on the 20th of December.
The company's next dividend payment will be US$0.20 per share, and in the last 12 months, the company paid a total of US$0.80 per share. Based on the last year's worth of payments, Vector Group stock has a trailing yield of around 5.1% on the current share price of $15.7. If you buy this business for its dividend, you should have an idea of whether Vector Group's dividend is reliable and sustainable. As a result, readers should always check whether Vector Group has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Vector Group paid out more than half (60%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that Vector Group's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Vector Group has grown its earnings rapidly, up 27% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Vector Group could have strong prospects for future increases to the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Vector Group's dividend payments per share have declined at 2.5% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
To Sum It Up
From a dividend perspective, should investors buy or avoid Vector Group? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Vector Group's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 60% and 54% respectively. Overall, it's hard to get excited about Vector Group from a dividend perspective.
In light of that, while Vector Group has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 3 warning signs with Vector Group (at least 2 which are a bit concerning), and understanding them should be part of your investment process.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.