A Look At Vicom Limited’s Dividend From 3 Important Investing Angles

Credit: Simon Cunningham

Vicom Limited (SGX: V01) is a company that has consistently paid an annual dividend over its last 10 fiscal years.

This raises the question: Can Vicom sustain its dividend in the future? Unfortunately, there is no easy answer. There’s no simple calculation that can tell investors for sure whether a company can maintain or grow its dividend in the years ahead.

But, there are still some things about a company’s business we can look at for clues. Here are three of them, keeping in mind that they are not the only important aspects: (1) the company’s profit history, (2) the company’s pay-out ratio, and (3) the strength of the company’s balance sheet.

Profit history

A company’s profits are an important source of its dividends. Has Vicom seen any large losses or big declines in profit over the past five years? That’s what I’m interested in finding out.

Source: S&P Global Market Intelligence

Turns out, Vicom’s net profit has actually been growing steadily over the past few years.

The pay-out ratio

The pay-out ratio refers to the percentage of a company’s profit that is paid out as a dividend.

There are two related things to bear in mind here. First, pay-out ratios should be less than 100%; it’s tough for a company to maintain its dividend if it is paying out all its profit. Second, the logic thus follows that the lower the pay-out ratio is, the better it could be; a low pay-out ratio means that a company’s dividend has more buffer to absorb negative developments in the business.

Vicom has a trailing dividend of S$0.2775 per share and a trailing earnings per share of S$0.331. These two numbers combine to form a pay-out ratio of 84%.

Strength of the balance sheet

A strong balance sheet gives a company a higher chance of being able to protect its dividend. There are many ways to gauge the strength of a company’s balance sheet. One way is to look at the amount of cash and debt a company has; clearly, we wouldn’t want debt to heavily outweigh cash.

In Vicom’s case, its latest financials show that it has cash of S$95.78 million and zero debt.

A Fool’s take

To sum up what we’ve seen here, Vicom is a company with a track record of steady profit growth, a pay-out ratio of less than 100%, and zero debt.

In any case, it’s worth reiterating that all that we’ve seen with Vicom above should not be taken as the final word on its investing merits – after all, those are just historical numbers. There is no guarantee that the company will perform similarly in the future.

As I had mentioned earlier, there are many other aspects of a company’s business to study when it comes to assessing the sustainability of its dividend.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.