Readers hoping to buy Viva Energy Group Limited (ASX:VEA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a 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. Accordingly, Viva Energy Group investors that purchase the stock on or after the 5th of September will not receive the dividend, which will be paid on the 20th of September.
The company's next dividend payment will be AU$0.085 per share, and in the last 12 months, the company paid a total of AU$0.27 per share. Last year's total dividend payments show that Viva Energy Group has a trailing yield of 8.7% on the current share price of A$3.12. If you buy this business for its dividend, you should have an idea of whether Viva Energy Group's dividend is reliable and sustainable. As a result, readers should always check whether Viva Energy Group has been able to grow its dividends, or if the dividend might be cut.
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. Viva Energy Group reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Viva Energy Group 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. Over the past year it paid out 128% of its free cash flow as dividends, which is uncomfortably high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Viva Energy Group 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last four years, Viva Energy Group has lifted its dividend by approximately 46% a year on average.
We update our analysis on Viva Energy Group every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
From a dividend perspective, should investors buy or avoid Viva Energy Group? We're a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that in mind though, if the poor dividend characteristics of Viva Energy Group don't faze you, it's worth being mindful of the risks involved with this business. Case in point: We've spotted 1 warning sign for Viva Energy Group you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.