Yahoo Finance Is It Worth Considering Vital Healthcare Property Trust (NZSE:VHP) For Its Upcoming Dividend?
Vital Healthcare Property Trust (NZSE:VHP) stock is about to trade ex-dividend in 4 days time. If you purchase the stock on or after the 11th of September, you won't be eligible to receive this dividend, when it is paid on the 26th of September.
Vital Healthcare Property Trust's next dividend payment will be NZ$0.025 per share, on the back of last year when the company paid a total of NZ$0.087 to shareholders. Calculating the last year's worth of payments shows that Vital Healthcare Property Trust has a trailing yield of 3.1% on the current share price of NZ$2.82. 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 check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Vital Healthcare Property Trust
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 80% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. That said, REITs are often required by law to distribute all of their earnings, and it's not unusual to see a REIT with a payout ratio around 100%. We wouldn't read too much into this. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out 80% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that Vital Healthcare Property Trust's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Vital Healthcare Property Trust's earnings per share have risen 13% per annum over the last five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. Higher earnings generally bode well for growing dividends, although with seemingly strong growth prospects we'd wonder why management are not reinvesting more in the business.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Vital Healthcare Property Trust dividends are largely the same as they were ten years ago.
Final Takeaway
From a dividend perspective, should investors buy or avoid Vital Healthcare Property Trust? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Vital Healthcare Property Trust's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 80% and 80% respectively. In summary, while it has some positive characteristics, we're not inclined to race out and buy Vital Healthcare Property Trust today.
Ever wonder what the future holds for Vital Healthcare Property Trust? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
