Universal Corporation (NYSE: UVV) The dividend will increase to US $ 0.78 on August 2. Based on the announced payment, the dividend yield for the company will be 5.5%, which is quite typical for the industry.
Check out our latest analysis for Universal
Universal does not earn enough to cover its payments
Unless the payments are sustainable, the dividend yield doesn’t mean too much. The last payment was 87% of the profits, but the cash flow was much higher. Since the dividend only pays money to shareholders, we are more concerned with the cash payout ratio from which we can see that there is a lot left to reinvest in the company.
Going forward, EPS could drop 3.1% if the company can’t turn the tide in recent years. If the dividend continues on its recent path, the payout ratio 12 months from now could be 97%, which is certainly a bit high to be sustainable going forward.
Universal has a strong track record
The company has a long history of paying dividends with very little fluctuation. As of 2011, the first annual payment was $ 1.88, compared to the most recent payment for a full year of $ 3.12. This means that he increased his distributions by 5.2% per year during this period. Dividends have grown at a reasonable rate over this time period, and without any major payout cuts over time, we think this is an attractive combination as it provides a good boost to returns for shareholders.
Dividend growth is questionable
Investors might be attracted to the stock depending on the quality of its payment history. However, initial appearances can be deceptive. Over the past five years, it appears that Universal’s EPS has fallen by about 3.1% per year. Falling profits will inevitably lead the company to pay a lower dividend based on falling profits.
Our thoughts on the Universal dividend
Overall, it’s probably not a great income value, although the dividend is increased at the moment. In the past, payments have been volatile, but in the short term the dividend could be reliable as the business generates enough cash. We would probably look elsewhere for an income investment.
Investors generally tend to favor companies with a consistent and stable dividend policy over those with an irregular policy. Meanwhile, despite the importance of dividend payments, these aren’t the only factors our readers should be aware of when evaluating a business. As an example, we have identified 1 warning sign for Universal which you should be aware of before investing. If you are a dividend investor, you can also view our organized list of high performing dividend stocks.
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