Vita Life Sciences GmbH (ASX:VLS) has announced that it will pay a dividend of A$0.035 per share on October 4. This will increase the dividend yield to an attractive 3.9% and give shareholder profits a nice boost.
Check out our latest analysis for Vita Life Sciences
The payment to Vita Life Sciences shows solid earnings coverage
If the payments are not sustainable, a high yield over a few years is not so important. The last dividend was easily covered by Vita Life Sciences’ earnings. This suggests that a fairly large portion of the profits are being reinvested in the company.
If the trend of the last few years continues, earnings per share will grow by 43.4% over the next 12 months. If the dividend stays on this path, the payout ratio could be 44% next year, which we believe can be quite sustainable going forward.
Dividend volatility
Although the company has a long history of paying dividends, it has cut them at least once in the last 10 years. The annual payment over the last 10 years was A$0.04 in 2014 and the payment in the last financial year was A$0.09. This represents a compound annual growth rate (CAGR) of approximately 8.4% per year over that period. We have seen cuts in the past, so while growth looks promising, we are a little cautious about the track record.
The dividend is likely to increase
Given that the dividend has been cut in the past, we need to check if earnings are growing and if this could lead to higher dividends in the future. Vita Life Sciences has impressed us, with EPS growth of 43% per year over the past five years. Vita Life Sciences clearly has the ability to grow quickly while also paying out cash to shareholders, putting the company in position to become a strong dividend payer in the future.
Vita Life Sciences seems to be a great dividend stock
Overall, a dividend increase is always good and we believe Vita Life Sciences is a strong dividend stock thanks to its track record and growing earnings. Distributions are fairly easily covered by earnings, which are also converted into cash flows. Taking all these factors into account, we believe this has solid potential as a dividend stock.
Market movements show how much a consistent dividend policy is valued compared to a more erratic one. At the same time, there are other factors that our readers should be aware of before putting capital into a stock. For example, we have selected the following: 3 warning signs for Vita Life Sciences investors should know before investing capital in this stock. If you are a dividend investor, you may also want to take a look at our curated list of high dividend stocks.
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