Yahoo Finance Viva Energy Group's (ASX:VEA) Shareholders Will Receive A Smaller Dividend Than Last Year
Viva Energy Group Limited (ASX:VEA) has announced it will be reducing its dividend payable on the 22nd of October to AU$0.062. However, the dividend yield of 4.7% is still a decent boost to shareholder returns.
View our latest analysis for Viva Energy Group
Viva Energy Group's Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Viva Energy Group's dividend made up quite a large proportion of earnings but only 48% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
EPS is set to grow by 164.3% over the next year. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 89%, which is on the higher side, but certainly still feasible.
Viva Energy Group's Dividend Has Lacked Consistency
Even in its short history, we have seen the dividend cut. The dividend has gone from AU$0.057 in 2018 to the most recent annual payment of AU$0.082. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Has Limited Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Viva Energy Group's earnings per share has shrunk at 26% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
In Summary
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 3 warning signs for Viva Energy Group that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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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