Venture Corporation Limited (SGX:V03) is set to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the latest date by which shareholders must be present on the books of the company to be eligible for payment of a dividend. It is important to know the ex-dividend date, because any trade in the stock must have settled on or before the record date. That means you’ll need to buy Venture shares by May 9 to receive the dividend, which will be paid on May 24.
The company’s next dividend payment will be S$0.50 per share. Last year, in total, the company distributed S$0.75 to shareholders. Last year’s total dividend payouts show that Venture has a yield of 4.4% on the current share price of SGD 17.15. Dividends contribute greatly to investment returns for long-term holders, but only if the dividend continues to be paid. We need to see if the dividend is covered by earnings and if it increases.
Check out our latest analysis for Venture
Dividends are usually paid out of company profits, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Venture paid out 66% of its profits to investors last year, a normal payout level for most companies. Still, cash flow is even more important than earnings in evaluating a dividend, so we need to see if the company has generated enough cash to pay its distribution. Over the past year, it has paid dividends equivalent to 241% of what it generated in free cash flow, a worrying percentage. Our definition of free cash flow excludes cash generated from the sale of assets, so since Venture pays out such a high percentage of its cash flow, it might be interesting to see if it has sold any assets or if it has had similar events that could have led to such a high dividend. Payment.
Venture has a large net cash position on the balance sheet, which could fund large dividends for a while, if the company wanted to. Yet, savvy investors know that dividends are best valued against the cash and profits generated by the company. Paying cash dividends on the balance sheet is unsustainable in the long term.
While Venture’s dividends were covered by the company’s reported earnings, cash is a bit more important, so it’s not nice to see that the company didn’t generate enough cash to pay its dividend. If this happened repeatedly, it would pose a risk to Venture’s ability to maintain its dividend.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
Companies with strong growth prospects are generally the best dividend payers because it is easier to increase dividends when earnings per share improve. If business goes into a recession and the dividend is cut, the company could see its value drop precipitously. For that reason, we’re pleased to see that Venture’s earnings per share have grown 12% annually over the past five years. Earnings have been growing at a decent pace, but we fear dividend payments have eaten up most of the company’s cash flow over the past year.
Most investors primarily gauge a company’s dividend prospects by checking the historical rate of dividend growth. Since our data began 10 years ago, Venture has increased its dividend by about 3.2% per year on average. It’s good to see that earnings and the dividend have improved – although the former has grown much faster than the latter, perhaps because the company has reinvested more of its earnings into growth.
Is Venture worth buying for its dividend? It’s good to see that earnings per share are growing and the company’s payout ratio is within a normal range for most companies. However, we are somewhat concerned that it paid out 241% of its cash flow, which is uncomfortably high. All things considered, we’re not particularly excited about Venture from a dividend perspective.
That being said, if dividends aren’t your biggest concern with Venture, you need to be aware of the other risks this company faces. Every business has risks, and we’ve spotted 1 warning sign for Venture you should know.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.