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Vita Group Limited (ASX:VTG) Pays A AU$0.024 Dividend In Just Three Days

Simply Wall St

Readers hoping to buy Vita Group Limited (ASX:VTG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 10th of September in order to be eligible for this dividend, which will be paid on the 25th of September.

Vita Group's upcoming dividend is AU$0.024 a share, following on from the last 12 months, when the company distributed a total of AU$0.048 per share to shareholders. Looking at the last 12 months of distributions, Vita Group has a trailing yield of approximately 4.4% on its current stock price of A$1.095. If you buy this business for its dividend, you should have an idea of whether Vita Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Vita Group

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Vita Group paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Luckily it paid out just 23% of its free cash flow last year.

It's positive to see that Vita 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Vita Group's earnings per share have dropped 5.5% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Vita Group has delivered 1.8% dividend growth per year on average over the past 10 years.

Final Takeaway

Should investors buy Vita Group for the upcoming dividend? Vita Group has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. All things considered, we are not particularly enthused about Vita Group from a dividend perspective.

On that note, you'll want to research what risks Vita Group is facing. In terms of investment risks, we've identified 2 warning signs with Vita Group and understanding them should be part of your investment process.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.