Vital Limited (NZSE: VTL) is set to trade off dividend within the next four days. The ex-dividend date is generally set at one working day before the registration date which is the deadline by which you must be present in the books of the company as a shareholder to receive the dividend. The ex-dividend date is important because the settlement process involves two full business days. So if you miss this date, you will not appear on the books of the company on the date of registration. Thus, you can buy Vital shares before September 30 in order to receive the dividend that the company will pay on October 15.

The upcoming dividend for Vital is NZ $ 0.024 per share, an increase from last year’s total dividends per share of NZ $ 0.02. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. That is why we should always check whether dividend payments seem sustainable and whether the business is growing.

Check out our latest review for Vital

Dividends are generally paid out of company profits. If a company pays more dividends than it made a profit, then the dividend could be unsustainable. Last year, Vital paid 98% of its profits as dividends to shareholders, which suggests that the dividend is not well covered by profits. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. The good news is that she has only paid out 24% of her free cash flow in the past year.

It’s good to see that while Vital’s dividends weren’t well covered by earnings, they are at least affordable from a cash flow perspective. However, 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 see how much of his Profits Vital has paid in the past 12 months.

Have profits and dividends increased?

When profits fall, dividend companies become much more difficult to analyze and safely own. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold massively at the same time. With that in mind, we are hampered by Vital’s 29% per year drop in revenue over the past five years. Such a sudden drop casts doubt on the future sustainability of the dividend.

Most investors will primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Vital has seen its dividend drop by 21% per year on average over the past 10 years, which is not great to see. It’s never nice to see profits and dividends go down, but at least management has reduced the dividend rather than potentially risking the health of the company in an attempt to maintain it.

Last takeaways

Is Vital an attractive dividend-paying stock, or better still, is it left in the store? It’s never great to see earnings per share drop, especially when a company pays out 98% of their profits as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower – good news from a dividend perspective – which makes us wonder why there is such a mismatch between income and cash flow. This is not an attractive combination from a dividend standpoint, and we are inclined to forgo this one for the time being.

So, if you are still interested in Vital despite its poor dividend qualities, you should be well informed about some of the risks that this security faces. Our analysis shows 3 warning signs for Vital which we strongly recommend that you consult before investing in the business.

A common investment mistake is to buy the first interesting stock you see. Here you will find a list of promising dividend paying stocks with a yield above 2% and an upcoming dividend.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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