Virco Mfg. Corporation's( NASDAQ:VIRC ) investors are due to receive a payment of $0.025 per share on 9th of January. The dividend yield will be 1.5% based on this payment which is still above the industry average.
Virco Mfg's Projected Earnings Seem Likely To Cover Future Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Virco Mfg was earning enough to cover the dividend, but it wasn't generating any free cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Looking forward, earnings per share could rise by 44.6% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.
See our latest analysis for Virco Mfg
Virco Mfg's Dividend Has Lacked Consistency
Looking back, Virco Mfg's dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 8 years was $0.06 in 2017, and the most recent fiscal year payment was $0.10. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Virco Mfg has seen EPS rising for the last five years, at 45% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Virco Mfg could prove to be a strong dividend payer.
Our Thoughts On Virco Mfg's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Virco Mfg's payments, as there could be some issues with sustaining them into the future. While Virco Mfg is earning enough to cover the payments, the cash flows are lacking. We don't think Virco Mfg is a great stock to add to your portfolio if income is your focus.
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. As an example, we've identified 2 warning signs for Virco Mfg that you should be aware of before investing. Is Virco Mfg not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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