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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Virtu Financial, Inc. (NASDAQ:VIRT) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Virtu Financial investors that purchase the stock on or after the 30th of November will not receive the dividend, which will be paid on the 15th of December.
The company's upcoming dividend is US$0.24 a share, following on from the last 12 months, when the company distributed a total of US$0.96 per share to shareholders. Calculating the last year's worth of payments shows that Virtu Financial has a trailing yield of 3.3% on the current share price of $28.85. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Virtu Financial can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Virtu Financial paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Virtu Financial's earnings have been skyrocketing, up 34% per annum for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Virtu Financial's dividend payments are broadly unchanged compared to where they were six years ago.
Is Virtu Financial an attractive dividend stock, or better left on the shelf? Companies like Virtu Financial that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, Virtu Financial appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, Virtu Financial has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
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. 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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