Don't Race Out To Buy Vunani Limited (JSE:VUN) Just Because It's Going Ex-Dividend
It looks like Vunani Limited (JSE:VUN) is about to go ex-dividend in the next 4 days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Vunani's shares on or after the 3rd of November will not receive the dividend, which will be paid on the 9th of November.
The company's upcoming dividend is R00.10 a share, following on from the last 12 months, when the company distributed a total of R0.10 per share to shareholders. Looking at the last 12 months of distributions, Vunani has a trailing yield of approximately 5.0% on its current stock price of R02.00. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Vunani has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Vunani distributed an unsustainably high 160% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut.
Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.
View our latest analysis for Vunani
Click here to see how much of its profit Vunani paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Vunani's earnings per share have fallen at approximately 24% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Vunani has delivered an average of 6.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Vunani is already paying out 160% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
To Sum It Up
Has Vunani got what it takes to maintain its dividend payments? Not only are earnings per share shrinking, but Vunani is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
So if you're still interested in Vunani despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 4 warning signs for Vunani (1 is significant!) that you ought to be aware of before buying the shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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