Yahoo Finance Universal's (NYSE:UVV) Upcoming Dividend Will Be Larger Than Last Year's
The board of Universal Corporation (NYSE:UVV) has announced that it will be paying its dividend of $0.80 on the 7th of August, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 6.0%.
View our latest analysis for Universal
Universal's Payment Has Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Universal was earning enough to cover the dividend, but it wasn't generating any free cash flows. 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 could expand by 3.9% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 64%, which is in the range that makes us comfortable with the sustainability of the dividend.
Universal Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2013, the dividend has gone from $1.96 total annually to $3.20. This means that it has been growing its distributions at 5.0% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Universal May Find It Hard To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Universal has only grown its earnings per share at 3.9% per annum over the past five years. Growth of 3.9% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.
Our Thoughts On Universal's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Universal is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Universal (of which 2 shouldn't be ignored!) you should know about. Is Universal not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
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