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The board of Village Super Market, Inc. (NASDAQ:VLGE.A) has announced that it will pay a dividend on the 28th of October, with investors receiving US$0.25 per share. The dividend yield will be 4.6% based on this payment which is still above the industry average.
Village Super Market's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Village Super Market's dividend made up quite a large proportion of earnings but only 40% of free cash flows. This leaves plenty of cash for reinvestment into the business.
EPS is set to fall by 4.0% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 77%, which is definitely on the higher side.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the dividend has gone from US$0.45 to US$1.00. This works out to be a compound annual growth rate (CAGR) of approximately 8.3% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Village Super Market might have put its house in order since then, but we remain cautious.
Village Super Market May Find It Hard To Grow The Dividend
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's not great to see that Village Super Market's earnings per share has fallen at approximately 4.0% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
Our Thoughts On Village Super Market's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Village Super Market is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for Village Super Market (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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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