VICOM Ltd's (SGX:WJP) investors are due to receive a payment of SGD0.0275 per share on 13th of May. However, the dividend yield of 3.8% still remains in a typical range for the industry.

View our latest analysis for VICOM

VICOM's Earnings Easily Cover The Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. The last dividend made up a very large portion of earnings and also represented 94% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Looking forward, could fall by 4.5% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 79%, which is definitely on the higher side.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the dividend has gone from SGD0.048 total annually to SGD0.055. This implies that the company grew its distributions at a yearly rate of about 1.4% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

VICOM May Find It Hard To Grow The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though VICOM's EPS has declined at around 4.5% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While VICOM is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think VICOM is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for VICOM you should be aware of, and 1 of them is potentially serious. Is VICOM not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.