Yahoo Finance Universal's (NYSE:UVV) Dividend Will Be Increased To $0.81
The board of Universal Corporation (NYSE:UVV) has announced that it will be paying its dividend of $0.81 on the 5th of August, an increased payment from last year's comparable dividend. This takes the annual payment to 7.0% of the current stock price, which is about average for the industry.
View our latest analysis for Universal
Universal's Dividend Is Well Covered By Earnings
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Universal's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Over the next year, EPS could expand by 3.3% if recent trends continue. If the dividend continues on this path, the payout ratio could be 67% by next year, which we think can be pretty sustainable going forward.
Universal Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the annual payment back then was $2.00, compared to the most recent full-year payment of $3.24. This works out to be a compound annual growth rate (CAGR) of approximately 4.9% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Earnings has been rising at 3.3% per annum over the last five years, which admittedly is a bit slow. Universal is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Universal's payments are rock solid. While Universal is earning enough to cover the payments, the cash flows are lacking. We don't think Universal is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Universal (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is Universal 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
