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Vector Group Ltd. (NYSE:VGR) has announced that it will pay a dividend of US$0.20 per share on the 29th of June. This payment means that the dividend yield will be 5.6%, which is around the industry average.
Vector Group's Dividend Is Well Covered By Earnings
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Vector Group's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
EPS is set to grow by 16.4% over the next year if recent trends continue. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 83%, which is on the higher side, but certainly still feasible.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the dividend has gone from US$0.98 to US$0.80. Doing the maths, this is a decline of about 2.0% per year. A company that decreases its dividend over time generally isn't what we are looking for.
Vector Group's Dividend Might Lack Growth
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Vector Group has impressed us by growing EPS at 16% per year over the past five years. However, the company isn't reinvesting a lot back into the business, so we would expect the growth rate to slow down somewhat in the future.
Our Thoughts On Vector Group's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Vector Group you should be aware of, and 2 of them are concerning. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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.
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