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Valvoline Inc. (NYSE:VVV) stock is about to trade ex-dividend in 2 days time. Investors can purchase shares before the 27th of February in order to be eligible for this dividend, which will be paid on the 16th of March.
Valvoline's upcoming dividend is US$0.11 a share, following on from the last 12 months, when the company distributed a total of US$0.45 per share to shareholders. Last year's total dividend payments show that Valvoline has a trailing yield of 2.0% on the current share price of $22.34. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Valvoline has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Valvoline paid out a comfortable 36% of its profit last year. 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 distributed 43% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Valvoline earnings per share are up 7.4% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, three years ago, Valvoline has lifted its dividend by approximately 32% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Should investors buy Valvoline for the upcoming dividend? Earnings per share growth has been growing somewhat, and Valvoline is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Valvoline is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Valvoline, and we would prioritise taking a closer look at it.
Wondering what the future holds for Valvoline? See what the nine analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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