Vector Capital (LON:VCAP) Has Affirmed Its Dividend Of £0.0153

The board of Vector Capital Plc (LON:VCAP) has announced that it will pay a dividend on the 3rd of June, with investors receiving £0.0153 per share. The dividend yield will be 9.0% based on this payment which is still above the industry average.

Check out our latest analysis for Vector Capital

Vector Capital's Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Vector Capital's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. This is a pretty unsustainable practice, and could be risky if continued for the long term.

EPS is set to fall by 10.0% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 77%, which is definitely on the higher side.

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Vector Capital's Dividend Has Lacked Consistency

Even in its short history, we have seen the dividend cut. The annual payment during the last 3 years was £0.0143 in 2021, and the most recent fiscal year payment was £0.0253. This means that it has been growing its distributions at 21% per annum over that time. Vector Capital 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.

Dividend Growth Potential Is Shaky

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. Vector Capital's EPS has fallen by approximately 10% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Vector Capital's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Vector Capital has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Vector Capital 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.