The board of Vaibhav Global Limited (NSE:VAIBHAVGBL) has announced that it will pay a dividend on the 1st of September, with investors receiving ₹1.50 per share. Based on this payment, the dividend yield on the company’s stock will be 2.0%, which is an attractive boost to shareholder returns.
See our latest analysis for Vaibhav Global
Vaibhav Global’s Earnings Easily Cover The Distributions
A big dividend yield for a few years doesn’t mean much if it can’t be sustained. Prior to this announcement, Vaibhav Global’s earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
Over the next year, EPS is forecast to expand by 41.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 56%, which is in the range that makes us comfortable with the sustainability of the dividend.
Vaibhav Global’s Dividend Has Lacked Consistency
It’s comforting to see that Vaibhav Global has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2014, the dividend has gone from ₹1.16 total annually to ₹6.00. This means that it has been growing its distributions at 23% per annum over that time. Vaibhav Global has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. It’s encouraging to see that Vaibhav Global has been growing its earnings per share at 19% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Our Thoughts On Vaibhav Global’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. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we’ve identified 2 warning signs for Vaibhav Global that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.