Yahoo Finance Why It Might Not Make Sense To Buy Vp plc (LON:VP.) For Its Upcoming Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Vp plc (LON:VP.) is about to go ex-dividend in just 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Vp's shares before the 24th of June to receive the dividend, which will be paid on the 5th of August.
The company's next dividend payment will be UK£0.25 per share. Last year, in total, the company distributed UK£0.25 to shareholders. Looking at the last 12 months of distributions, Vp has a trailing yield of approximately 2.8% on its current stock price of £8.8. If you buy this business for its dividend, you should have an idea of whether Vp's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Vp
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. Vp's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Vp didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 15% of its cash flow last year.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Vp was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Vp has delivered 8.8% dividend growth per year on average over the past 10 years.
We update our analysis on Vp every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Should investors buy Vp for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
So if you're still interested in Vp despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For instance, we've identified 3 warning signs for Vp (2 are significant) you should be aware of.
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. 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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