Dividend investors: don’t be too quick to buy Victrex plc (LON: VCT) for its next dividend
It looks like Victrex plc (LON: VCT) is set to be ex-dividend within the next four days. Typically, the ex-dividend date is one business day prior to the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. Therefore, Victrex investors who buy the shares on or after June 3 will not receive the dividend, which will be paid on June 30.
The company’s next dividend will be £ 0.13 per share, and over the past 12 months the company has paid a total of £ 0.27 per share. Looking at the last 12 months of distributions, Victrex has a trailing yield of around 1.1% on its current price of £ 24.16. Dividends are an important source of income for many shareholders, but the health of the company is crucial to sustaining these dividends. So we have to ask ourselves if Victrex can afford its dividend and if the dividend could increase.
Check out our latest review for Victrex
Dividends are usually paid out of company profits, so if a company pays more than it earned, its dividend is usually more at risk of being reduced. Victrex paid out 96% of its profits, which is more than we accept, unless there are extenuating circumstances. Still, cash flow is usually more important than profit in assessing dividend sustainability, so we always need to check whether the company has generated enough cash to pay its dividend. Dividends consumed 67% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organizations.
It’s good to see that if Victrex’s dividends weren’t well covered by earnings, at least they’re affordable from a cash flow perspective. Yet if the company continues to pay out such a high percentage of its profits, the dividend could be at risk if business goes badly.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies with declining profits are riskier for dividend shareholders. If business slows down and the dividend is reduced, the company could see its value drop precipitously. Victrex’s earnings per share have fallen about 8.7% per year over the previous five years. Such a sharp drop casts doubt on the future viability of the dividend.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Over the past 10 years, Victrex has increased its dividend by approximately 0.7% per year on average.
Is Victrex an attractive dividend-paying stock, or is it better to stay on the shelf? Earnings per share are down, which is not encouraging. In addition, Victrex pays the majority of its profits and more than half of its free cash flow. It’s hard to say if the company has the financial resources and the time to change things without reducing the dividend. Overall, it doesn’t appear to be the most suitable dividend-paying stock for a long-term investor.
So, if you are still interested in Victrex despite its poor dividend qualities, you need to be well informed about some of the risks that this stock faces. Every business has risks, and we have spotted 1 warning sign for Victrex you should know.
If you are looking for dividend paying stocks, we recommend that you take a look at our list of top dividend paying stocks with a yield above 2% and a future dividend.
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