Universal (NYSE:UVV) Has Announced That It Will Be Increasing Its Dividend To $0.80
Universal Corporation (NYSE:UVV) will increase its dividend from last year's comparable payment on the 7th of August to $0.80. The payment will take the dividend yield to 6.3%, which is in line with the average for the industry.
See our latest analysis for Universal
Universal's Earnings Easily Cover The Distributions
We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Universal's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Over the next year, EPS could expand by 3.9% if recent trends continue. If the dividend continues on this path, the payout ratio could be 64% by next year, which we think can be pretty sustainable going forward.
Universal Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the annual payment back then was $1.96, compared to the most recent full-year payment of $3.20. This implies that the company grew its distributions at a yearly rate of about 5.0% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.
Dividend Growth May Be Hard To Achieve
Investors could be attracted to the stock based on the quality of its payment history. Earnings per share has been crawling upwards at 3.9% per year. Growth of 3.9% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
In Summary
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Universal you should be aware of, and 2 of them are a bit concerning. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.
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