Yahoo Finance Vector Group Ltd. (NYSE:VGR) Pays A US$0.20 Dividend In Just Four Days
Vector Group Ltd. (NYSE:VGR) is about to trade ex-dividend in the next 4 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. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Vector Group's shares on or after the 5th of June will not receive the dividend, which will be paid on the 14th of June.
The company's next dividend payment will be US$0.20 per share. Last year, in total, the company distributed US$0.80 to shareholders. Looking at the last 12 months of distributions, Vector Group has a trailing yield of approximately 7.3% on its current stock price of US$10.91. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Vector Group can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Vector Group
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. Vector Group paid out more than half (69%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Dividends consumed 65% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Vector Group paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Vector Group's earnings have been skyrocketing, up 27% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Vector Group's dividend payments per share have declined at 3.5% per year on average over the past 10 years, which is uninspiring. Vector Group is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Has Vector Group got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Vector Group is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, it's hard to get excited about Vector Group from a dividend perspective.
In light of that, while Vector Group has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 3 warning signs with Vector Group (at least 2 which are a bit concerning), and understanding them should be part of your investment process.
If you're in the market for strong dividend payers, we recommend checking 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.
