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We Wouldn't Be Too Quick To Buy Vecima Networks Inc. (TSE:VCM) Before It Goes Ex-Dividend

Simply Wall St

Readers hoping to buy Vecima Networks Inc. (TSE:VCM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 10th of October in order to receive the dividend, which the company will pay on the 1st of November.

Vecima Networks's upcoming dividend is CA$0.06 a share, following on from the last 12 months, when the company distributed a total of CA$0.2 per share to shareholders. Last year's total dividend payments show that Vecima Networks has a trailing yield of 2.4% on the current share price of CA$8.98. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Vecima Networks

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Vecima Networks reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out more than half (57%) of its free cash flow in the past year, which is within an average range for most companies.

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

TSX:VCM Historical Dividend Yield, October 5th 2019

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Vecima Networks was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Vecima Networks has delivered an average of 4.1% per year annual increase in its dividend, based on the past five years of dividend payments.

Get our latest analysis on Vecima Networks's balance sheet health here.

Final Takeaway

Has Vecima Networks got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not that we think Vecima Networks is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Ever wonder what the future holds for Vecima Networks? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.