Readers hoping to buy Vulcan Materials Company (NYSE:VMC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 26th of February to receive the dividend, which will be paid on the 15th of March.
Vulcan Materials's next dividend payment will be US$0.37 per share, and in the last 12 months, the company paid a total of US$1.36 per share. Calculating the last year's worth of payments shows that Vulcan Materials has a trailing yield of 0.8% on the current share price of $164.38. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Vulcan Materials paid out a comfortable 31% of its profit last year. A useful secondary check can be to evaluate whether Vulcan Materials generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 25% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Vulcan Materials'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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Vulcan Materials's earnings have been skyrocketing, up 20% per annum for the past five years. Vulcan Materials is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Vulcan Materials has delivered an average of 3.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Vulcan Materials is keeping back more of its profits to grow the business.
From a dividend perspective, should investors buy or avoid Vulcan Materials? Vulcan Materials has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. There's a lot to like about Vulcan Materials, and we would prioritise taking a closer look at it.
While it's tempting to invest in Vulcan Materials for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Vulcan Materials and you should be aware of this before buying any shares.
If you're in the market for dividend stocks, we recommend checking our list of top 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.
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