VGR Stock: Is this 7.7% High Dividend Yield Safe?
VGF is Paying a High Dividend Yield of 7.7%
Today’s article will examine if an investment in holding company Vector Group Ltd (NYSE:VGR) stock is worthwhile, as the company is currently offering a dividend yield of 7.7%.
The one concern with a high-dividend-yielding stock is if the payout is safe. That’s because a poor total dividend per share can result in less income and the possibility of the stock trading lower.
The first step is always looking at the yield the company is currently paying out. A decision needs to be heavily based on the income paid and the company itself should be examined thoroughly. Today we will look at three different and important areas as they relate to Vector Group.
VGT Financial Position
The lifeline of a company is its financial statements, which provide insight on how the company will perform in the future and how shareholders will be treated.
One of the most important parts of a financial statement is the top-line revenue, or gross income. The expectation is that the revenue grows over time, while at the same time more of it is retained within the company following operation costs. This happens to be the case for Vector Group, which, from 2012 to 2016, has seen revenue climb from $1.0 billion to $1.7 billion. (Source: “Vector Group Ltd.,” MarketWatch, last accessed September 28,2017.)
There is also more cash being retained within the business, strengthening Vector’s financial position even further. The standalone cash balance has increased by 16% from 2012 to 2016. Taking the cash balance and dividing it by the market cap results in a ratio of roughly 20%, meaning a strong cash position.
One method of identifying a safe dividend is taking a look at its history. The objective here is to look at how often the dividend is paid and how much. It should be a very steady payment with no reductions or skipped payments.
Vector Group’s quarterly dividend has been in place since 1995 and never missed or cut. Also, since that first payment, the dividend per share has grown by 1,180%. This speaks loud and clear about how safe the dividend is, as this means it has remained unchanged even during recessions and down markets.
The quarterly dividend is not the only method used to reward shareholders. The company is currently on a 19-year streak of paying a five-percent annual stock dividend to investors in VGR stock. This move means more shares being held by investors. A stock dividend is not a common method of rewarding investors. (Source: “Vector Group Declares Quarterly Cash Dividend,” Vector Group Ltd., August 30, 2017.)
The combination of a cash dividend and stock dividend is a potent one for an investor’s net worth. Additional income and more shares of the company means a greater payout with each subsequent dividend. The company’s focus on maintaining a strong balance sheet also helps keep the dividend safe. This is important to consider, as it helps to ensure future payouts.
Vector Group’s future outlook helps determine if the dividend can remain at the same rate or tread higher. To figure out the safety of the dividend, consider past and future earnings per share (EPS), as detailed below:
|Year||Annual EPS||Type of Earnings|
Growth in earnings makes it more likely that the dividend is safe. Having a large cash balance on hand certainly doesn’t hurt, either.
The Bottom Line on VGR Stock
The Internet makes it very easy to find an investment which offers a high dividend yield. The one issue, however, is that not all investments are created equal. That’s why it is very important to dig deeper into a company before buying shares. Having the necessary information ahead of time will help you make a more informed decision and preserve capital.
With all this being said VGR stock should be highly considered for an investment based on its very shareholder friendly moves. Also due to the fact that a high dividend yield that is four times the average yield given by the S&P 500 index is being paid out regularly.