Top Dividend Stocks – Universal’s (NYSE:UVV) Upcoming Dividend Will Be Larger Than Last Year’s
Universal Corporation (NYSE:UVV) has announced that it will be increasing its dividend on the 2nd of August to US$0.78. This takes the annual payment to 5.3% of the current stock price, which is about average for the industry.
Universal Doesn’t Earn Enough To Cover Its Payments
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. The last payment made up 87% of earnings, but cash flows were much higher. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
EPS is set to fall by 3.1% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 97%, which could put the dividend under pressure if earnings don’t start to improve.
NYSE:UVV Historic Dividend June 4th 2021
Universal Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2011, the first annual payment was US$1.88, compared to the most recent full-year payment of US$3.12. This implies that the company grew its distributions at a yearly rate of about 5.2% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Universal May Find It Hard To Grow The Dividend
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren’t as good as they seem. Universal has seen earnings per share falling at 3.1% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely – the opposite of dividend growth.
Our Thoughts On Universal’s Dividend
In summary, while it’s always good to see the dividend being raised, we don’t think Universal’s payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we’ve picked out 1 warning sign for Universal that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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