Victorian Plumbing Group plc’s (LON:VIC) investors are due to receive a payment of £0.0095 per share on 8th of March. This payment takes the dividend yield to 2.1%, which only provides a modest boost to overall returns.
See our latest analysis for Victorian Plumbing Group
Victorian Plumbing Group’s Earnings Easily Cover The Distributions
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, prior to this announcement, Victorian Plumbing Group’s dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share is forecast to rise by 30.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 30%, which is in the range that makes us comfortable with the sustainability of the dividend.
AIM:VIC Historic Dividend December 29th 2023
Victorian Plumbing Group Is Still Building Its Track Record
It is tough to make a judgement on how stable a dividend is when the company hasn’t been paying one for very long. This doesn’t mean that the company can’t pay a good dividend, but just that we want to wait until it can prove itself.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. Unfortunately things aren’t as good as they seem. Over the past three years, it looks as though Victorian Plumbing Group’s EPS has declined at around 21% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn’t be feeling too comfortable.
In Summary
Overall, it’s not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. The payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don’t think Victorian Plumbing Group is a great stock to add to your portfolio if income is your focus.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. Is Victorian Plumbing Group 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.
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