Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Vita Life Sciences Limited (ASX:VLS) is about to go ex-dividend in just 4 days. The ex-dividend date generally occurs two days before the record date, which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Vita Life Sciences’ shares before the 19th of September in order to receive the dividend, which the company will pay on the 3rd of October.
The company’s next dividend payment will be AU$0.045 per share, on the back of last year when the company paid a total of AU$0.10 to shareholders. Looking at the last 12 months of distributions, Vita Life Sciences has a trailing yield of approximately 4.1% on its current stock price of AU$2.41. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Vita Life Sciences paid out more than half (66%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Vita Life Sciences generated enough free cash flow to afford its dividend. Over the last year it paid out 60% of its free cash flow as dividends, within the usual range for most companies.
It’s positive to see that Vita Life Sciences’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Check out our latest analysis for Vita Life Sciences
Click here to see how much of its profit Vita Life Sciences paid out over the last 12 months.
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That’s why it’s comforting to see Vita Life Sciences’s earnings have been skyrocketing, up 24% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.