Don't Buy V.F. Corporation (NYSE:VFC) For Its Next Dividend Without Doing These Checks

NYSE:VFC) is about to go ex-dividend in the next four days. You will need to purchase shares before the 9th of September to receive the dividend, which will be paid on the 21st of September.” data-reactid=”28″>It looks like V.F. Corporation (NYSE:VFC) is about to go ex-dividend in the next four days. You will need to purchase shares before the 9th of September to receive the dividend, which will be paid on the 21st of September.

V.F’s next dividend payment will be US$0.48 per share, on the back of last year when the company paid a total of US$1.90 to shareholders. Calculating the last year’s worth of payments shows that V.F has a trailing yield of 2.8% on the current share price of $68.54. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether V.F can afford its dividend, and if the dividend could grow.

View our latest analysis for V.F ” data-reactid=”30″> View our latest analysis for V.F

If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. V.F paid out a disturbingly high 257% of its profit as dividends last year, which makes us concerned there’s something we don’t fully understand in the business. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. V.F paid out more free cash flow than it generated – 126%, to be precise – last year, which we think is concerningly high. It’s hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we’d wonder how the company justifies this payout level.

Cash is slightly more important than profit from a dividend perspective, but given V.F’s payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.

here to see the company’s payout ratio, plus analyst estimates of its future dividends.” data-reactid=”37″>Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

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Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we’re discomforted by V.F’s 21% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, V.F has lifted its dividend by approximately 12% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. V.F is already paying out a high percentage of its income, so without earnings growth, we’re doubtful of whether this dividend will grow much in the future.

Final Takeaway

Has V.F got what it takes to maintain its dividend payments? It’s looking like an unattractive opportunity, with its earnings per share declining, while, paying out an uncomfortably high percentage of both its profits (257%) and cash flow as dividends. Unless there are grounds to believe a turnaround is imminent, this is one of the least attractive dividend stocks under this analysis. Bottom line: V.F has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.